Altcoins Down on the Federal Reserve’s Pessimistic Tone, Bitcoin Drops to $101K

The U.S. Federal Reserve recently cut its benchmark interest rate by 25 basis points, bringing it to a range of 4.25%-4.50%. This is the third consecutive rate cut of the year, totaling a 100 basis points decrease since September. The decision was widely anticipated, but market attention quickly shifted to the Fed’s policy statement, economic forecasts, and comments from Chairman Jerome Powell, especially given the continued strong economic growth and persistent inflation.

The Fed's updated economic projections, which include the “dot plot” showing future interest rate expectations, suggest the rate could fall to 3.9% by the end of 2025, implying another 50 basis points of cuts next year. This projection is higher than the 3.4% forecasted in September, signaling that the Fed expects less aggressive rate cuts in 2025. The new forecast for inflation also reflects this, with expected PCE (Personal Consumption Expenditures) inflation rising to 2.5% for next year, up from the previous estimate of 2.1%.

After the Fed's announcement, Bitcoin's price fell from around $104,000 to approximately $101,000, marking a nearly 5% drop in the past 24 hours. Other cryptocurrencies like XRP, ADA (Cardano), and LTC (Litecoin) experienced even sharper declines, dropping nearly 10%. The S&P 500 also saw a drop after the Fed's decision. In his press conference, Chairman Powell explained that the slower pace of rate cuts was due to recent higher inflation and increased inflation expectations for next year.

Powell added that the Fed is closer to what it considers a neutral interest rate, which is another reason why future rate hikes may be more gradual.

Responding to a question about the possibility of the U.S. government creating a strategic bitcoin reserve under President Trump, Powell stated that the Fed is not allowed to own bitcoin, according to the Federal Reserve Act, and does not seek a law change in that regard.

According to Andre Dragosch, Head of European Research at Bitwise, the main challenge for the Fed is that financial conditions remain tight even though rates have been cut. He noted that long-term bond yields and mortgage rates have risen since September, and the U.S. dollar has appreciated, which suggests financial tightening. The strengthening dollar, in particular, poses a risk to Bitcoin, as it is often linked to a reduction in global money supply, which can negatively impact Bitcoin and other cryptocurrencies. However, Dragosch also pointed out that on-chain factors for Bitcoin, such as decreasing exchange balances, remain supportive, indicating a growing supply deficit.