Bitcoin's (BTC) price experienced a sharp decline, falling to $109,200 shortly before the US Federal Reserve announced its decision to cut interest rates by 25 basis points. While traders might have anticipated some market caution leading up to Federal Reserve Chair Jerome Powell's announcement, Bitcoin's 6% drop from its Monday high of $116,400 was more significant than expected, particularly given the widespread consensus among analysts for a 25 basis point rate reduction.
Economic Headwinds Influence Crypto Market
The Federal Reserve's updated dot plot indicates a projection of three rate cuts in 2025. Analysts at Goldman Sachs are forecasting at least two additional 25 basis point reductions by March and June of 2026, which would bring the Fed's benchmark rate into the 3% to 3.25% range. In light of this outlook, Bitcoin's recent price action appears to diverge from the expectations of many traders.
Crypto analytics firm Hyblock provided insight into market dynamics:
Recent history has shown that the FOMC leads to a price drop in BTC, followed by a move up. This was the case in both the no rate change and rate cut (last one) scenarios. If price does dip post-FOMC and signs of bullish confluence emerge, such as bid-heavy orderbooks, it would likely present good opportunities for investors.
Considering the prevailing market sentiment favoring continued rate cuts, investor attention has shifted towards future economic developments. Factors such as increasing US job layoffs, the long-term consequences of trade policies, and the underlying fundamentals of the artificial intelligence sector are now key areas of focus for traders. These macroeconomic considerations are expected to exert a greater influence on Bitcoin's price movements than the recently announced interest rate cut, which had largely been anticipated and priced into the market.
End of Quantitative Tightening Announced
A significant development within the FOMC statement was the confirmation that the Federal Reserve will conclude its balance sheet reduction efforts on December 1, signaling an end to quantitative tightening.