Is The Crypto Bull Run Over? Top Exec Discusses The Market Crash

by

As a seasoned market analyst with over two decades of experience navigating financial markets, I’ve seen my fair share of volatility and unpredictability. Today’s crypto market downturn following the FOMC meeting is no exception, but it doesn’t faze me. The Federal Reserve’s decision to signal fewer cuts in 2025 than previously expected has sent shockwaves through the risk asset spectrum, including Bitcoin and altcoins.

Yesterday’s FOMC meeting on December 18 led to a significant drop in the overall cryptocurrency market. Despite the Fed’s 25-basis-point rate cut as predicted, they indicated that they would make fewer reductions in interest rates by 2025 compared to earlier predictions. This unexpected announcement negatively impacted the crypto market.

Consequently, the price of Bitcoin plummeted by over 5% and dipped beneath the $100,000 threshold. However, it hinted at a minor rebound. Meanwhile, all altcoins experienced substantial drops, averaging more than 10%.

The Federal Reserve’s move to lower interest rates by a quarter-point, as anticipated, also brought about a significant change in their forecast for next year’s rate path. Instead of the earlier mentioned four reductions, they now expect only two, indicating a more conservative approach. This adjustment in future monetary policy had an impact across various risk assets, causing the S&P 500 to dip by 3% and the Russell 2000 Small Cap Index to fall by 4.4%.

Is The Crypto Bull Run Over?

In the realm of cryptocurrencies, there was a significant response following the news. This morning, Matt Hougan, the Chief Investment Officer at Bitwise Asset Management, explained the market conditions via X, stating: “The primary factor today was the Fed’s announcement […] The Fed reduced rates by 25 basis points as anticipated, but reduced future rate reductions predictions for next year from 4 cuts to 2 cuts. High interest rates negatively impact risky assets, and the Fed’s declaration triggered a substantial decline in all risky assets.

As a crypto investor, I’ve observed that the recent fluctuations in Bitcoin’s price seem to be highly responsive to changes in monetary conditions, as suggested by Hougan. In other words, the dip was amplified due to numerous leveraged long positions being liquidated, leading to a more significant pullback. To put it simply, about $600 million worth of these high-leverage bullish bets were wiped out today, contributing to the market’s downturn.

Regardless of the significant downward adjustment, Hougan maintains that the overall perspective remains optimistic: “Cryptocurrencies are gaining traction from within, and today’s news does not disrupt the overarching trends. These include shifts in Washington’s crypto policy, increasing institutional adoption, inflows into ETFs, governments and corporations buying Bitcoin, and groundbreaking technological advancements in the field of programmable blockchain technology.

He pointed to technical indicators as a supporting factor for his thesis: “My favorite momentum gauge is still positive: Bitcoin’s 10-day exponential moving average ($102k) is still above its 20-day exponential moving average ($99k).”

In summary, Hougan affirmed at the end of his discussion that the adjustment in Federal Reserve predictions wouldn’t disrupt the prolonged upward trend in cryptocurrencies, emphasizing: “We’re in a multi-year bull market for crypto. The anticipated 0.5% reduction in interest rates won’t alter this fact.

Other analysts shared similar perspectives on the Federal Reserve’s communication approach. Warren Pies, Founder of 3Fourteen Research, expressed his viewpoint through X: “Raising inflation projections, reducing unemployment rate estimates, and maintaining existing cuts suggests that the Fed could potentially implement more than two interest rate reductions in 2025 if economic data shows unexpectedly dovish trends.

Distinguished macro economists have expressed similar thoughts. Crypto expert Fejau (@fejau_inc) referred to the central bank’s tactics as a method to shape market predictions, stating: “The Fed was compelled to cut this week, so it is employing a hawkish 2025 FFR dot plot projection to lower long-term bond yields, even though it cut today […] This is the realm of macro psychological warfare. Illusions and deception, dear friends.

He described dot plots as a means for psychological impact rather than a definitive guide: “It’s crucial to perceive the dot plots not as prophecies of upcoming events, but as psychological instruments […] The Fed has gained time to gather more data before they take action […] I can almost assure you that 2025 will not unfold as predicted in their dots.

Andreas Steno Larsen, being the CIO of Steno Global Macro Fund and CEO at Steno Research, made a comparable observation: “By frequently revising down their forecasts, the Fed significantly lowers the threshold for rate reductions next year. This is a shrewd strategy if they aim to make further cuts, but wish to avoid any premature commitment.

At press time, Bitcoin traded at $101,766.

Read More

2024-12-19 16:16