Cryptocurrency and broader equities saw a sharp decline on Wednesday as traders tried to gauge the outlook for next year, following a hawkish pivot from the U.S. central bank.
Although the 25 basis point rate cut announced by the Federal Reserve on Wednesday was largely anticipated, concerns grew after the bank signaled that interest rates may not be lowered again in the near future.
During a press conference, Fed Chair Jerome Powell told reporters that while inflation was “steadily” receding, recent high readings indicated that it had been “slower than hoped.”
The Fed’s updated “dot plot” for 2025 revealed a shift in policy expectations, with officials now projecting two rate cuts—equivalent to 50 basis points—over the next 12 months, down from the three cuts outlined in the previous forecast.
“Inflation has made progress toward the Committee’s 2% objective but remains somewhat elevated,” the Fed stated in a press release.
Bitcoin dropped 5% to just above $100,000 following Powell’s comments, while the Nasdaq plunged 3.6%, the Dow fell 2.6%, and the S&P 500 declined nearly 3%.
Risk assets, including crypto and equities, have surged this year, partly due to a stabilizing economy as the central bank works to bring inflation under control.
But what does this mean for crypto?
Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree Capital, stated that traders should expect and be comfortable with 20% corrections during a bull market.
“I don’t see any reason to think this bull market has run its course just yet,” McMillin told *Decrypt*. “This looks much more like a dip worth buying.”
He added that the market has been trending higher and consolidating around elevated levels over the past week, signaling a healthy acceptance of the new price range as it stabilizes ahead of a potential further advance.
“This is a short-term puke due to the FOMC meeting being more hawkish than expected,” Pratik Kala, head of research at Apollo Crypto, told *Decrypt*. “Expect higher next week, same time from today.”
Others tend to agree.
“I get the hawkish reaction. I don’t buy the narrative that this is the Fed dot plot that ends the bull run,” Pav Hundal, lead analyst at Swyftx, told *Decrypt*.
President-elect Donald Trump’s proposed tariffs to boost domestic industrial production could lead to short-term market volatility next year and increase inflationary pressures, according to economists.
However, Hundal believes that the tariff discussions are unlikely to have a significant impact on the Fed’s decision to cut rates further or maintain them at current levels.
“It doesn’t even matter if the tariff talk is all bluster; it’s a clear signal that Trump will do whatever it takes to stimulate economic growth, and that is good for risk assets,” he said.
This comes as several favorable factors continue to converge ahead of Trump’s inauguration on January 20.
On the campaign trail, Trump promised to protect crypto mining interests, establish a Bitcoin reserve, and make the U.S. the “crypto capital” of the world. He also proposed creating specific crypto policies that would address long-standing industry demands.
“There is just too much behind this trade, in our opinion, right now,” Jonathan de Wet, chief investment officer at crypto investment firm Zerocap, told *Decrypt*.
He pointed to a “supportive U.S. regulatory environment,” a strong U.S. economy, and MicroStrategy’s entry into the Nasdaq 100 last week, which effectively “opens the door for passive capital” to be allocated via index exchange-traded funds.
*Editor’s note: Adds additional analyst comments*