Following the Federal Open Market Committee (FOMC) meeting on December 18, global stock market indices have experienced a slight decline. However, bitcoin (btc) has remained stable, trading in the mid-$90,000 range at the time of writing.
bitcoin Steady Amid Speculation of Slower Interest Rate Cuts
After more than a year of consecutive interest rate hikes, the US Federal Reserve (Fed) initiated rate cuts in September, reducing them by 50 basis points. This generated optimism in the cryptocurrency and equity markets, which rallied in anticipation of a dovish monetary policy favorable to risk assets.
However, according to a report According to K33 Research, the December 18 FOMC meeting cast some doubt on regular interest rate cuts as Fed Chair Jerome Powell hinted at a slower pace of monetary easing in 2025. The Fed's slowing down of interest rate cuts is largely due to potential inflationary effects. pressures associated with the Trump presidency.
As a result, the S&P 500 – a stock index that tracks the performance of 500 of the largest publicly traded companies in the United States – has fallen 2.55% over the last month. Despite this pullback in stocks, 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 FOMC meeting on December 18 is the catalyst for the recent slowdown. Lunde added:
The last two weeks post-FOMC have faced a global risk reduction, and bitcoin has faced negative returns of 11% in two weeks, while ether has declined 15%, pushing eth/btc towards 0.036.
While an 11% drop in bitcoin 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, and altcoins often experience even steeper declines before recovering.
Lunde also noted that bitcoin's 30-day correlation with the Nasdaq has surpassed 0.5 for the first time since September. This higher correlation suggests that bitcoin increasingly reflects the movements of traditional, technology-intensive stock markets.
Market braces for inflation under Trump
Despite the Federal Reserve cutting interest rates by 100 basis points since September, markets remain cautious about persistent inflation. This concern is evident in the 100 basis point rise in 10-year Treasury yields.
Recent drop in btc price bolsters crypto entrepreneur Arthur Hayes forecast that the flagship cryptocurrency may witness a “heartbreaking dump” surrounding Trump's inauguration. More chain analysis suggests that btc may face a sharp correction to $80,000.
That said, many industry experts keep that bitcoin's long-term bullish outlook remains intact. At the time of publishing, btc is trading at $94,805, up 2.6% in the last 24 hours.
Featured image from Unsplash.com, chart from TradingView.com
