Cryptocurrency Market Decline

The cryptocurrency market has continued its downtrend following the U.S. Federal Reserve's expected 25 basis point rate cut on Wednesday. The global cryptocurrency market cap now stands at $3.33 trillion, an 11.8% decline in the past 24 hours, according to CoinGecko data.

Bitcoin's Performance

Bitcoin has fallen by over 10% since the Federal Reserve's Dec. 18 rate decision. Aurelie Barthere, Nansen Principle Research Analyst, noted, "I would have expected the correction to occur later, possibly in January." She attributed the sell-off to the Fed's hawkish stance and political uncertainty around fiscal priorities in the U.S. Barthere sees a $90,700–$91,000 price range for bitcoin, representing a post-U.S. election support level.

“So far, the correction seems orderly, with no signs of panic in trading volumes, which suggests the potential for buy-the-dip activity, so the correction seems normal and healthy after crypto outperformed all other financial assets post-November 5,” Barthere said.

ETF Outflows

Barthere also highlighted that Thursday saw the largest single-day outflows from U.S. spot bitcoin exchange-traded funds (ETFs), with $680 million exiting these products, ending a 15-day streak of positive inflows. "ETF outflows and prices are reflexive, and we need to see some price stabilization for outflows to taper," she noted.

Fed's Monetary Policy Shift

Despite the U.S. central bank's rate cut on Wednesday, risk assets have been more influenced by signals from Federal Reserve Chair Jerome Powell’s post-FOMC meeting press conference, which indicated a more hawkish stance on monetary policy moving forward. This reaction occurred even though the federal funds rate was lowered to a range of 4.25% to 4.50%, its lowest level since early 2022.

Inflation Projections

Several factors, including the Fed's revised core PCE inflation projections for 2025 from 2.2% to 2.5%, contributed to the current risk-off shift in global markets, along with the U.S. central bank's more hawkish stance indicating only two rate cuts for 2025 instead of the previously anticipated four. Powell remarked, "We are in a new phase of the process. From this point forward, it's appropriate to move cautiously and look for progress on inflation."

Strategic Bitcoin Reserve

In his post-FOMC speech, Powell referenced President Trump's proposal for a U.S. strategic bitcoin reserve, stating that the U.S. central bank is "not allowed to own bitcoin." However, that doesn't preclude it from existing. K33 Research cited Barclays analysts, noting that establishing a bitcoin reserve would require either a congressional vote or potentially an executive order—processes beyond the Fed’s authority. Republican Senator Cynthia Lummis has introduced a bill to establish such a reserve, which would see the U.S. Treasury purchasing 200,000 bitcoins annually until the stockpile reaches one million tokens.