- The Federal Reserve announced a hawkish decision to cut interest rates twice in 2025.
- XRP, Solana and Dogecoin saw losses of almost 10%.
- The crypto market saw almost $700 million in liquidations in the last 24 hours.
Bitcoin and the crypto market are lower on Wednesday following the Federal Open Market Committee’s (FOMC) announcement to slow rate cuts in 2025, with the benchmark federal funds rate falling in a lower range of 4.25% to 4.50%.
Fed Rate Decision Casts Shadow Over Crypto Market Recovery
The Federal Reserve (Fed) cut interest rates by 25 basis points on Wednesday, lowering the federal funds rate to between 4.25% and 4.50% following the December meeting.
The decision to reduce rates by 25 basis points corresponded to the expectations of market participants. However, the crypto market declined following the Fed’s decision.
Indeed, the market reaction may not be linked to the December rate cut decision, but to the outlook for 2025.
Fed Chairman Jerome Powell indicated that the apex bank revised its outlook for 2025 and lowered potential cuts from 4 to 2. This suggests a more hawkish outlook for the new year, triggering a sell-off in the Fed market. cryptography.
Similarly, the Fed raised its PCE inflation expectations from 2.1% to 2.5% at the end of 2025, indicating that inflation could rise in the new year.
This could also have detrimental consequences for the current bull rally the crypto market is experiencing, as investors are now anticipating unfavorable market activity next year.
After the announcement, Bitcoin returned to $100,314, falling 5.4% as the entire crypto market shaved $200 million off its market cap.
Most major altcoins fell alongside Bitcoin, including Ethereum, which is down more than 6% in the past 24 hours.
Other tokens include XRP, Solana and Dogecoin, down 10%, 7% and 9% respectively.
The recent drop triggered liquidations worth $675 million over the past 24 hours, with Bitcoin and Ethereum seeing long liquidations of over $100 million each.
The stock market also began to suffer losses, with the S&P 500 falling sharply after the Fed’s decision, indicating a close correlation between crypto and stocks when it comes to reaction to Federal Reserve decisions.
FAQ Bitcoin, altcoins and stablecoins
Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as currency. This payment method cannot be controlled by any person, group or entity, eliminating the need for third party participation during financial transactions.
Altcoins are any cryptocurrency except Bitcoin, but some also consider Ethereum to be a non-altcoin because it is from these two cryptocurrencies that the fork occurs. If this is true, then Litecoin is the first altcoin, derived from the Bitcoin protocol and, therefore, an “enhanced” version of it.
Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset they represent. To achieve this, the value of a stablecoin is linked to a commodity or financial instrument, such as the United States dollar (USD), whose supply is regulated by an algorithm or demand. The main purpose of stablecoins is to provide an on-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are prone to volatility.
Bitcoin dominance is the ratio of the market capitalization of Bitcoin to the total market capitalization of all cryptocurrencies combined. This gives a clear picture of the interest in Bitcoin among investors. Strong BTC dominance typically occurs before and during a bull run, during which investors resort to investing in relatively stable, high market cap cryptocurrencies like Bitcoin. A decline in BTC dominance typically means investors are shifting their capital and/or profits to altcoins in search of higher returns, which usually triggers an explosion in altcoin rallies.
