The Fed's impact on crypto
As much as cryptocurrencies have been marketed as a way out from under the traditional financial ecosystem, the crypto market trades a lot like traditional risk assets like growth stocks. In this case, when interest rates rise, growth stocks fall and crypto moves down along with them.
I mentioned that the Fed cut rates yesterday, but the market took the inflation talk as a risk for longer-term bonds, and those yields rose after the announcement. According to Bloomberg, the 10-year government bond rose 6 basis points in the last day and is now up 64 basis points over the past year.
As we saw in 2022, higher rates mean lower valuations for cryptocurrencies.
A FOMO cycle nearing its end?
This current run for crypto started after the election when there was an increase in speculation that President-elect Donald Trump would open up a bull run for the crypto market. And that may happen, but the gains seen didn't line up with any fundamental changes in the industry.
Fear of missing out, or FOMO, drove valuations higher, and that FOMO may now be coming to an end.Important Key Points:
- The Federal Reserve announced a hawkish decision to cut interest rates twice in 2025.
- XRP, Solana, and Dogecoin registered losses of nearly 10%.
- The crypto market has seen nearly $700 million in liquidations in the past 24 hours.
Fed's rate decision casts a shadow on the crypto market rally
The Federal Reserve (Fed) cut interest rate on Wednesday by 25bps, lowering the federal funds rate to the 4.25% to 4.50% range following the December meeting.
The decision to cut rates by 25 basis points matched expectations from market participants. However, the crypto market declined following the Fed's decision.
This is because the market reaction may not be tied to the rate cut decision for December but the outlook for 2025.