The Federal Reserve has destabilized the market
Author: Talking Outside the Lines
In the early hours of today (December 19) Beijing time, the United States announced the December interest rate meeting, which seems to have a significant impact on the market. We mainly noticed two points:
On the positive side, the Federal Reserve will lower the interest rate by another 25 basis points, down to 4.25--4.50%.
On the negative side, Powell hinted that BTC is not feasible as a national reserve.
Next, let's briefly analyze these two aspects:
First, regarding the interest rate cut
In previous articles by Talking Outside the Lines, the expectation of interest rate cuts has been a major focus for us, because theoretically and empirically, a reduction in interest rates by the Federal Reserve means that investors may allocate more funds to high-risk markets (such as the crypto market). It is not an exaggeration to say that the major bull market in 2021 was largely compounded by the interest rate cuts at that time.
If we compare the interest rate cuts with the price of Bitcoin, we can also clearly see that over time, the significant shifts in interest rate expectations increasingly align with key moments in Bitcoin's price movements. A major reason for this shift may be that traditional market investors are continuously increasing their adoption and holdings of Bitcoin, and more and more investors have begun to regard interest rates and other macroeconomic indicators as important reference factors for investing in Bitcoin. As shown in the figure below.
Secondly, Powell's hint
At the FOMC meeting, when a reporter asked: Do you see any value or benefits in the US government building a reserve of bitcoin?
Powell said: We're not allowed to own bitcoin, and we're not looking for a law change.
With Powell's statement, it seems the market was also shaken, causing Bitcoin to briefly drop to around $99,000. In addition, the three major US stock indices also fell across the board due to this impact. It is not an exaggeration to say that today the Federal Reserve seems to have directly caused a market crash.
However, I did a quick search, and Powell's statement itself is not problematic, because in the United States, the Federal Reserve is indeed an independent institution that is not directly controlled by the President or Congress. On the other hand, Congress has the authority to amend the rules and laws governing the Federal Reserve's operations, and whether this will happen depends on whether Trump officially takes office and whether his team will act as this reformer. However, from Trump's publicly expressed personal views so far, he seems quite willing to include Bitcoin in the United States' strategic reserves.
Through the simple analysis of these two aspects, we can conclude that Powell's statement at today's meeting did have some impact on the short-term market, but from a longer-term perspective, Bitcoin becoming a strategic reserve for the United States does not seem impossible.
From a more macro perspective, it appears that the dollar's dominant position is gradually declining year by year, while the US debt continues to soar, with the total debt now approaching $36 trillion. As shown in the figure below.
Therefore, many analysts currently believe that incorporating Bitcoin into the strategic reserves of the United States and using dollar BTC for a certain degree of hedging can continue to strengthen the United States' position in the digital economy.
Of course, there are also other analysts who believe that Bitcoin will threaten the existing hegemony of the dollar, and incorporating BTC into strategic reserves would disrupt the current status of the dollar, making such a situation unlikely.
As for whether you agree with these two viewpoints or which one you lean towards, it doesn't really matter to others; just remember one thing: the future of Bitcoin is unstoppable.
However, today's Federal Reserve meeting has indeed caused panic among many people, and Powell's remarks have also led to a new round of liquidation in the entire crypto market. According to on-chain data, in just the past 12 hours, the liquidation scale in the crypto market has exceeded $680 million, with approximately $600 million in long positions liquidated. As shown in the figure below.
Meanwhile, many people also seem to be engaging in panic selling, especially among altcoins, with many altcoins experiencing double-digit declines in a single day. As shown in the figure below.
As for the short-term market trend going forward, I have seen some analysts expressing pessimism, believing that Bitcoin will soon fall below $60,000. However, personally, I think the probability of falling below $90,000 this month is low, but I will not stop anyone's actions. Although I always remind everyone to have patience and stay calm, I will also respect everyone's thoughts and decisions.
As we mentioned in our previous article (December 17): the market is often like this; when prices rise, various potential positive news and analyses based on this will suddenly appear in front of people. Conversely, when prices fall, various media will immediately create negative news to align with market sentiment.
In the next couple of days, we will likely continue to see reports or news through various media, social platforms, and communities: such as certain institutions planning to pause buying or selling Bitcoin, certain whales have begun to sell Bitcoin, or certain analysts successfully timed the market before this drop…
Just this morning, I saw a partner in the group share a rather interesting image, and I’ll share it with everyone here for a bit of fun.
