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Following the Federal Reserve's announcement of a rate drop, the cryptocurrency market had a crazy day. Rather than celebrating, investors have witnessed a robust sell-off that has caused Bitcoin and numerous other altcoins to crash.
It's interesting how Jerome Powell's remarks can transform a strong bull run into an unplanned clearance sale. Millions of dollars will be spent on liquidations. This time, the Fed's recent statement that "we might not cut rates that much" resulted in a total different outcome this time. The price dropped from $108K to $95K in just 72 hours.
Effects of Rate Cut Decision
The Federal Reserve formally announced a 0.25% reduction in the benchmark interest rate on December 18, 2024. Their goal was to maintain it between 4.25% and 4.50%. This would sound good because a decrease in interest rates would often increase so-called "risky resources," such as cryptocurrency. However, the market responded very differently and began to move entirely in the opposite direction.
Immediately following the Fed's action, Bitcoin dropped to $100,314, a drop of almost 5.4%. Following this week's CPI statistics, which revealed inflation dropped more than anticipated, the cryptocurrency has jumped to $108,000. The euphoria didn't last long.
Reasons behind Crypto Market Bleeding
The key to the problem is the signals pointing to 2025. Powell stated that the Fed has lowered its projections and now anticipates two interest rate decreases rather than four next year. Investors fear that the Federal Reserve's policy would be less flexible than they had anticipated as a result of that harsh reappraisal.
Indicating that rising prices are still present and that a mild rate decrease by the Fed would be difficult to execute anytime soon. The Fed also raised its forecast for inflation in the PCE at the end of 2025 from 2.1% to 2.5%.
All of these elements worked together to reduce sentiment in the market. Investors are concerned about a possible drop in capital flowing into cryptocurrencies as well as reduced economic development predictions. This has led to a total sell-off.
Effects on Alt Coins
- Ethereum had a fall of over 6%.
- XRP declined by about 10%.
- Solana dropped around 7%.
- Dogecoin made a 9% decline.
Public Reaction
No one appears overly concerned. Perhaps it's because this is something we've all seen before. Even the passionate supporters of buying the crash are taking their time.
Mass Liquidations
This price reduction resulted in the liquidation of roughly $700 million in futures contracts during the last 24 hours. Over $100 million in long positions in Ethereum and Bitcoin were liquidated. Furthermore, the stock market was also greatly impacted by the Fed's decision. There was a noticeable fall in the S&P 500 index. This demonstrates how closely cryptocurrencies and stocks respond to shifts in the Fed's policy.
