Federal Reserve rate cuts, Powell’s cautious tone, and upcoming political shifts drive a crypto crash today.
Yesterday, Federal Reserve Chairman Jerome Powell announced a 0.25% rate cut. The Fed’s cautious stance sent shockwaves through the markets, while Powell defended the decision as beneficial for the economy.
This conservative approach to future rate adjustments caused investors to panic, and the prices of cryptocurrencies and traditional stocks fell sharply.
Federal Reserve’s Rate Cut Leads to Crypto Crash
Previous cuts in September and November were intended to control inflation and strengthen the economy. However, their impact thus far has been spotty, with inflation falling from a high of 3.5% in March to a low of 2.4% in September and eventually rising to 2.7% in November.
Powell further said that the Fed is committed to supporting economic growth and a strong labor market. Still, he said no plan was set for future rate changes based on key factors like economic data and inflation risks.
These ambiguities heightened investors’ fears and sent them back to safer havens, causing them to withdraw from riskier assets like cryptocurrencies.
Crypto Crash and Stocks’ Performance
The immediate aftermath of the Fed’s announcement was sharp declines across traditional and digital asset markets. The leading cryptocurrency, Bitcoin, plunged by 5.85%, falling from $106,080.05 to $102,309. Altcoins faced even steeper challenges.
Ethereum dropped 4.7%, XRP tumbled 6.8%, and Dogecoin lost 6.2%. The total capitalization of the larger cryptocurrency market, excluding Bitcoin, contracted by 7.74% today, while the S&P 500 index lost 2.90%.
Arthur Hayes Warns of Trump-Inauguration Crypto Crash
Meanwhile, crypto veteran and former BiTMex crypto exchange CEO Arthur Hayes has warned about the possibility of another crash. According to Hayes, Donald Trump’s 2025 US Presidency swearing-in on January 20 will trigger a “harrowing dump” in the cryptocurrency market.
As such, Hayes postulates that Trump’s first 100 days in office could be characterized by a massive US dollar devaluation to make the American economy competitive globally and strengthen its labor market.
However, says Hayes, this approach might cause some turbulence in the financial markets, notably the crypto market, over the short term. The expert expects a large-scale sell-off on the inauguration dates, followed by some buy-ins during the first six months of 2025.
$850 Million in Liquidations
Meanwhile, the crypto crash coincided with a wave of liquidations further destabilized the market. According to on-chain data, the amount wiped out soared above $850 million in 24 hours, with long positions accounting for most of those losses.
Bitcoin noted an 8% drop from its all-time high of $108,000, even though it has since rallied above $100,000 at the time of writing. Altcoins also experienced $222 million in liquidations, affecting assets like Ethereum, Binance Coin, and XRP.
The largest single liquidation occurred on Binance for a $7 million Ethereum trade.
Resilient Sentiments
Regardless, the crypto community is still optimistic despite the crypto crash. The crypto fear and greed index is 75, indicating extreme greed or strong bullishness.
Investment in BTC-focused products has risen, with the iShares Bitcoin Trust by BlackRock noting inflows of $359.6 million today. To many investors, digital assets hedge macroeconomic uncertainties, their extreme volatility aside.
Hence, institutional interest tops these investment inflows. On December 18, Spot Bitcoin ETFs drew in $275.4 million in new investments, while their cumulative net flows hit $37.01 billion.
Also, these ETFs’ assets under management are now almost $116 billion, showcasing strong investor belief in this investment product. Therefore, many investors would buy more shares of these ETFs while there would still be new investors.
Crypto Crash and Macroeconomic Forces
The latest crypto crash has again shown that cryptocurrencies are increasingly interwoven with broader economic policies. Despite various macroeconomic conditions and government policies, the crypto market has proven resilient.
Hence, any downturn in the crypto market would be short-lived, as many people are in digital assets for the long term.
