Crypto market falls 4% despite Fed’s 25bps interest rate cut

On December 18, 2024, the Federal Reserve reduced interest rates by 25 basis points to 4.50%, but the crypto market responded with a 4% decline, signaling concerns over future inflation and slower rate cuts.

Typically, a rate cut would be seen as favorable for cryptocurrencies, as it signals softer monetary policy and lower borrowing costs.

However, the market’s reaction has been largely negative due to the Fed’s projections for higher inflation in 2025 and a slower pace of rate cuts.

Investors had hoped for a more aggressive reduction in rates, which would have been more supportive for risk assets like crypto.

“Stock markets and crypto have been exploding for over a year with high interest rates and you’re worried that they’ll stop pumping because the Fed would cut as much as you heard someone say they should,” noted popular influencer ‘Gum’ on X (formerly Twitter).

Despite Bitcoin’s (CRYPTO:BTC) recent surge to an all-time high of $108,000, driven by the release of November’s Consumer Price Index (CPI) data, the bullish sentiment has since cooled.

The CPI data, which showed a 2.7% year-over-year increase, had briefly lifted market confidence, but concerns over macroeconomic factors quickly returned.

“The Fed is cutting rates because the US govt cannot afford the interest payments on $36.2 trillion in debt. We have a $2 trillion budget deficit. We are paying over $1.2 trillion in interest on the debt. They probably WANT inflation to go much higher. That inflates the debt away. But it causes insane amounts of financial damage to just about everyone else,” wrote Wall Street Mav.

Heading into the holiday season, the market remains cautious, and short-term volatility is expected, especially with lower liquidity.

Despite this, crypto markets have surged all year, buoyed by institutional adoption and the growing presence of Bitcoin ETFs.

These factors, along with potential regulatory changes, could still provide long-term support for the market.