Cryptocurrency Market Plummets as FED Implements Hawkish Stance on Interest Rates

The cryptocurrency market witnessed a significant decline on Wednesday following the announcement by the Federal Reserve about a more cautious approach to interest rate cuts in 2025. The Federal Open Market Committee (FOMC) lowered the federal funds rate by 25 basis points, bringing the interest rate range to 4.25% to 4.50%. However, the hawkish outlook for the next year has overshadowed the rate cut in December, causing a widespread sell-off in the cryptocurrency space. The hawkish signal from the Fed reduces market sentiment. The Fed's decision to cut the benchmark interest rate by 25 basis points has met market expectations. However, the announcement of a slower rate cut in 2025 has created anxiety among investors. Fed Chairman Jerome Powell emphasized the change in forecasts, with the expected rate cut for 2025 down from four to two. This adjustment reflects a more cautious approach in the context of concerns about persistent inflation. Adding to the pessimistic sentiment, the Fed has adjusted its Personal Consumption Expenditures (PCE) inflation forecast for 2025 from 2.1% to 2.5%. This increase indicates that inflation pressures may remain higher for longer than expected, potentially hindering the anticipated price growth of the cryptocurrency market in the coming year. Bitcoin and Altcoin lead the market downturn In response to the Fed's announcement, Bitcoin (BTC) fell 5.4%, closing at $100,314. The overall cryptocurrency market has lost $200 million in value, with major altcoins following Bitcoin's downward trend. Ethereum (ETH) has dropped sharply by 6% in the last 24 hours. XRP decreased by 10%, while Solana (SOL) and Dogecoin (DOGE) decreased by 7% and 9% respectively. The sudden downturn has led to about 675 million USD of liquidation across the entire market, with Bitcoin and Ethereum each accounting for over 100 million USD in the extended liquidation rounds. Macroeconomic factors and market reactions The ripple effect of the hawkish tone of the Fed has spread beyond the cryptocurrency market. The S&P 500 also experienced a significant decline, highlighting the strong correlation between digital assets and traditional stocks. Investors' predictions of unfavorable market conditions in 2025 have cast a shadow over both markets, as concerns about inflation and tighter monetary policies weigh on sentiment. Prospects for 2025 The cautious stance of the Fed and the adjustment of inflation expectations signal a challenging year ahead for both the cryptocurrency and traditional markets. With fewer rate cuts planned and persistent inflation pressures, investors may face increased volatility and reduced risk appetite. While the interest rate cut in December is in line with previous forecasts, the long-term prospects of the Fed highlight the possibility of prolonged economic instability. For the cryptocurrency market, this could mean more obstacles as there is no clear path to reducing borrowing costs and stabilizing inflation. The coming months will be crucial as the market adjusts to the Fed's tightening path and broader economic factors continue to shape investor behavior. DYOR! #Write2Win #Write&Earn $BTC {spot}(BTCUSDT)