Following the meeting of the Federal Open Market Committee (FOMC) on December 18, global stock indices experienced a slight decline. However, Bitcoin (BTC) has remained stable, trading around $90,000 at the time of writing.
Bitcoin stable amid speculation of slower interest rate cuts
After more than a year of consecutive interest rate hikes, the US Federal Reserve (Fed) initiated rate cuts in September, reducing rates by 50 basis points. This sparked optimism in crypto and stock markets, which rallied in anticipation of an accommodative monetary policy favorable to risk assets.
However, according to a report According to K33 Research, the December 18 FOMC meeting sowed some doubts about regular interest rate cuts, as Fed Chairman Jerome Powell suggested the pace of monetary easing would be slower in 2025 The Fed’s decision to slow interest rate cuts is largely due to inflationary potential. pressures associated with the Trump presidency.
As a result, the S&P 500 – a stock index that tracks the performance of 500 of the largest US-listed companies – fell 2.55% over the past month. Despite this decline in stocks, Bitcoin has shown resilience, reflecting its status as an emerging asset class.
Commenting on the development, Vetle Lunde, head of research at K33 Research, said the December 18 FOMC meeting was the catalyst for the recent downturn. Lunde added:
The last two weeks following the FOMC saw de-risking globally, and bitcoin faced negative two-week returns of 11%, while ether declined 15%. , pushing ETH/BTC towards 0.036.
Although an 11% drop in Bitcoin price is significant, it is relatively modest in the context of Bitcoin’s historical performance. During bull runs, pullbacks ranging from 20% to 30% are common for the leading cryptocurrency, with altcoins often experiencing even steeper declines before rebounding.
Lunde also noted that Bitcoin’s 30-day correlation with the Nasdaq climbed above 0.5 for the first time since September. This increased correlation suggests that Bitcoin is increasingly mirroring movements in traditional, tech-heavy stock markets.
The market prepares for inflation under Trump
Even though the Fed has cut interest rates by 100 basis points since September, markets remain cautious about persistent inflation. This concern is evident from the 100 basis point rise in 10-year Treasury yields.
The recent drop in BTC price strengthens crypto entrepreneur Arthur Hayes. forecast that the flagship cryptocurrency could experience a “heartbreaking dump” around Trump’s inauguration. Additionally, on-chain analysis suggests that BTC could face a sharp correction to $80,000.
That said, many industry experts maintain that Bitcoin’s long-term bullish outlook remains intact. At press time, BTC is trading at $94,805, up 2.6% in the past 24 hours.
Featured image from Unsplash.com, chart from TradingView.com
