Crypto market bleeds following hawkish rate cut decision by Fed
- The Federal Reserve announced a hawkish decision to cut interest rates twice in 2025.
- XRP, Solana and Dogecoin registered losses of nearly 10%.
- The crypto market has seen nearly $700 million in liquidations in the past 24 hours.
Bitcoin and the crypto market are down on Wednesday following the Federal Open Market Committee (FOMC) announcement to slow down rate cuts in 2025, with the benchmark federal funds rate declining to a lower range of 4.25% to 4.50%.
Fed's rate decision casts shadow on crypto market rally
The Federal Reserve (Fed) cut interest rate on Wednesday by 25bps, lowering the federal funds rate to the 4.25% to 4.50% range following the December meeting.
The decision to cut rates by 25 basis points matched expectations from market participants. However, the crypto market declined following the Fed's decision.
This is because the market reaction may not be tied to the rate cut decision for December but the outlook for 2025.
Fed Chair Jerome Powell indicated the apex bank revised their 2025 outlook and dropped the potential cuts from 4 to 2. This suggests a more hawkish outlook for the new year, sparking a sell-off across the crypto market.
Likewise, the Fed raised its expectations for PCE inflation from 2.1% to 2.5% at the end of 2025, indicating that inflation may increase in the new year.
It may also take a toll on the current bull rally that the crypto market has been experiencing, as investors now anticipate unfavorable market activity next year.
After the announcement, Bitcoin retraced to $100,314, dropping 5.4% as the entire crypto market shaved $200 million off its market capitalization.
Most top altcoins dipped alongside Bitcoin, including Ethereum, which has declined over 6% in the past 24 hours.
Other tokens include XRP, Solana and Dogecoin, down by 10%, 7% and 9%, respectively.
The recent decline sparked liquidations worth $675 million in the past 24 hours, with Bitcoin and Ethereum witnessing long liquidations of over $100 million each.
The stock market also began experiencing losses, with the S&P 500 dropping sharply after the Fed decision, indicating a close correlation between crypto and stocks as regards reaction to the Federal Reserve decisions.
Bitcoin, altcoins, stablecoins FAQs
Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.
Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.
Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.
Bitcoin dominance is the ratio of Bitcoin's market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.
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