Following the Federal Open Market Committee (FOMC) meeting on December 18, global equity market indices have experienced a slight downturn. However, Bitcoin (BTC) has held steady, trading in the mid-$90,000 range at the time of writing.
Bitcoin Steady Amid Speculations Of Slower Interest Rate Cuts
After over a year of consecutive interest rate hikes, the US Federal Reserve (Fed) initiated rate cuts in September, reducing rates by 50 basis points. This sparked optimism in both crypto and equity markets, which rallied in anticipation of a dovish monetary policy favorable to risk-on assets.
However, according to a report by K33 Research, the December 18 FOMC meeting has cast some doubts over regular rate cuts, as Fed chairman Jerome Powell hinted at a slower pace of monetary easing in 2025. The Fed’s decision to go slow with interest rate cuts is largely due to potential inflationary pressures associated with Trump’s presidency.
As a result, the S&P 500 – a stock market index tracking the performance of 500 of the largest US-listed companies – has dropped 2.55% over the past month. Despite this pullback in equities, Bitcoin has shown resilience, reflecting its status as an emerging asset class.
Commenting on the development, Vetle Lunde, Head of Research at K33 Research, said the December 18 FOMC meeting is the catalyst for the recent downturn. Lunde added:
The past two weeks following the FOMC have been met by global de-risking, and bitcoin has faced negative two-week returns of 11%, whereas ether has declined by 15%, pushing the ETH/BTC down toward 0.036.
While an 11% drop in Bitcoin’s price is significant, it is relatively modest in the context of Bitcoin’s historical performance. During bull runs, pullbacks ranging from 20% to 30% are common for the leading cryptocurrency, with altcoins often experiencing even sharper declines before rebounding.
Lunde also noted that Bitcoin’s 30-day correlation with the Nasdaq has climbed above 0.5 for the first time since September. This heightened correlation suggests that Bitcoin is increasingly mirroring the movements of traditional tech-heavy equity markets.
Market Braces For Inflation Under Trump
Despite the Fed cutting interest rates by 100 basis points since September, markets remain cautious about persistent inflation. This concern is evident from the 100-basis-point rise in 10-year Treasury yields.
The recent decline in BTC price bolsters crypto entrepreneur Arthur Hayes’ forecast that the flagship cryptocurrency may witness a “harrowing dump” around Trump’s inauguration. Further, on-chain analysis suggests that BTC may face a sharp correction to $80,000.
That said, many industry experts maintain that Bitcoin’s long-term bullish outlook remains intact. At press time, BTC is trading at $94,805, up 2.6% in the past 24 hours.
Featured Image from Unsplash.com, Chart from TradingView.com
