Why Cryptocurrency Market Is Down Today: Bitcoin Drops Amid Fed’s Hawkish Rate Cuts – Today, the crypto market is seeing a severe plunge as Bitcoin and others of the top cryptocurrencies continue to face an enormous drop. Until this date, Bitcoin is at $95,136.73 after witnessing a decline of 2.43% from its price. This has arisen after a series of actions witnessed, which include one by the Federal Reserve regarding adjustment in interest rates. Now, let’s have a look at what made the market fall and how it is affecting crypto investors.
1. Federal Reserve Hawkish Rate Cut Decision
The Federal Open Market Committee (FOMC) announced an all-important interest rate cut by 25 basis points on 19 December 2024. It made the federal funds rate 4.25%-4.50%. Though rate-cutting was quite predictable and expected, the Fed’s expectations for 2025 have introduced a sea of uncertainty that has reflected through most of the financial markets and finally even in the cryptocurrency market as well.
Federal Reserve Chairman Jerome Powell admitted that the central bank has revised its forecast for the economy in 2025. The Fed had initially thought that it would make some rate cuts in the next year. However, it now toned down its forecast from four cuts to just two. This has resulted in a hawkish tilt that has come across apprehensions over slower recoveries of the economy as well as inflation in 2025. Therefore, investors are reading back their expectations, which eventually causes a sell-off in the crypto market.
Also read: US Fed Rate Cut: Impacts Indian Markets, Sensex Falls 1,100 Points
2. Inflation Concerns Spark Market Reactions
It further revised its forecasts for Personal Consumption Expenditures or PCE inflation which is one of the main gauges of the US’s inflation trends. The Federal Reserve now expects it to rise to 2.5 percent by 2025 from 2.1 percent at an earlier forecast. This is a reason for alarm as some suspect that inflation could be high and prevent consumers from buying more products at higher price tags also.
These are issues that cryptocurrency investors have been particularly concerned about. Cryptocurrencies, for example, Bitcoin, have been perceived as an inflation hedge. However, now that the Fed has sent signals that inflation may not decline as initially anticipated, investors are wondering whether crypto assets will remain a reliable hedge against inflation. As such, it has triggered a wave of selling, where investors prefer to cash out before the market experiences further volatility.
3. Crypto Mass Losses
The news was not friendly to the Fed, which brought severe blows to the crypto market. Almost all of the top cryptocurrencies lost their worth significantly. Bitcoin reversed back to $100,314 as it lost 5.4%. Major altcoins didn’t stay out of the loss train. Ethereum plummeted more than 6% in 24 hours. XRP and Solana lost close to 10%, and Dogecoin shed 9%.
The losses are not restricted to just some coins. After the Fed decision, almost $200 million of market capitalization was suffered by the market. It shows that total loss occurs due to the unawareness of the players within the market and reactions went sharp in order to reduce all possible risks.
Also read: Bitcoin Price Prediction 2025: Can Bitcoin Hit $150,000 Post-Halving?
4. Bitcoin and Traditional Market Correlation
It seems like the market treats Bitcoin and other cryptocurrencies as standalone instruments within the market. Yet, the latest movements suggest a trend that is more correlated with mainstream assets, like stocks. The S&P 500 index even dived post the Fed’s announcement indicating a deeper market reaction toward the decisions of the Federal Reserve.
The crypto market is increasingly reflecting the traditional stock market dynamics. Indeed, since the Fed moves have a bearing on global economic sentiment and both crypto and stock markets equally respond to major policy changes to result in synchronized market downfalls, this correlation should make some crypto investors question the hedging potential of cryptocurrencies even in times of economic uncertainty.
Conclusion
This is the most demanding time for the cryptocurrency market because of the hawkish rate cut from the Fed. High inflation worries and a clue that the Fed’s outlook for 2025-the lessened rate cuts- sent investor expectations into the spin, which thus caused sell-offs and liquidations on the scale. Major cryptocurrencies such as Bitcoin, Ethereum, XRP, and Dogecoin all have been severely battered with hundreds of millions of dollars lost in market capitalization.
Currently, this situation appears to tie crypto short-term prospects to economic variables in general, mainly on the interest rates and inflation areas. Investors should be very careful since the markets are still uncertain after the recent statements by the Fed. Volatility will, however, allow for opportunities to thrive and long-term holders of the cryptocurrencies might capitalize when the market stabilizes itself in the coming months.
