Crypto Market Struggles after Fed's Cautious Outlook and Rate Cut Remarks

The cryptocurrency market extended its losses on Friday morning, continuing a selloff triggered by Federal Reserve Chairman Jerome Powell saying on Wednesday that the central bank has no intention of holding Bitcoin as part of its reserves and will take a more cautious approach to interest rate cuts in 2025.

Bitcoin (BTC) dropped 7% in the past 24 hours, trading at around $95,000. Ethereum (ETH) declined 10% to $3,293. XRP dipped 8.4% to $2.17, and Solana decreased by 10%, now priced at $187. The overall cryptocurrency market cap dropped 9.3% to $3.4 trillion, according to CoinGecko.

In the past 24 hours, 434,185 traders were liquidated, with total liquidations coming in at $1.42 billion, according to CoinGlass. BTC accounted for around $334 million in liquidations, while ETH followed with $315.4 million. The largest single liquidation order, valued at $15.08 million in ETHUSDT, occurred on Binance.

BTC and ETH spot exchange-traded funds (ETFs) also experienced a downturn on Dec. 19, recording outflows for the first time in weeks. BTC spot ETFs recorded their highest outflows since launching earlier this year, with $650 million withdrawn, while ETH spot ETFs recorded outflows of $60.47 million, according to SoSoValue data.

"The crypto market has already been on pins and needles around the possibility of a correction following the record run in the price of bitcoin through $100,000. So it wasn’t going to take much to at least rock the boat a little,” said Joel Kruger, market strategist at LMAX Group.“On Wednesday, we got that catalyst from the world of traditional markets, and more specifically, from the Fed policy decision.”

Kruger noted that while crypto assets have successfully avoided strong correlations with traditional markets in recent months, the fallout from Wednesday’s Fed decision was too significant to ignore.

“In the end, we don’t believe such fallout will carry any meaningful impact on the medium and longer-term outlook, though short-term it makes sense to see the latest bout of selling,” Kruger said.

Powell’s market-moving comments

In a press conference on Wednesday, Jerome Powell ruled out the possibility of the central bank adding Bitcoin to its balance sheet, citing concerns related to the Federal Reserve Act.

"We’re not allowed to own Bitcoin. The Federal Reserve Act says what we can own, and we’re not looking for a law change," Powell said. "That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed."

That same day, the Federal Reserve lowered its benchmark interest rate by 0.25 percentage points to a target range of 4.25%–4.5%, its lowest level since February 2023.

According to a Federal Reserve press release, this marks a total reduction of one percentage point since September and is the third rate cut by the central bank this year. Despite the cut, markets tumbled amid concerns over the Fed’s cautious outlook on future reductions and lingering economic uncertainty.

“Risk markets have been excited about the prospect of four rate cuts from the Fed in 2025. But on Wednesday, the Fed dot plot revealed central bankers cutting that in half to an expectation of only two rate cuts in 2025,” said Kruger. “And so, markets faced a wave of risk-off flow.”