Bitcoin falls on speculation of fewer rate cuts in 2025

The world's leading cryptocurrency is giving in to an uncertain future, but it still shows signs of long-term strength.

The price of bitcoin experienced a 5.59% drop, reaching USD 100,204.01, after the announcement by the United States Federal Reserve (FED) of an interest rate cut. However, the market remains optimistic about the possible creation of a Bitcoin reserve by the new president. Bitcoin fell on speculation that there will be no aggressive rate cuts next year.

Bitcoin price experienced a 5.59% drop, reaching $100,204.01, following the US Federal Reserve (FED) announcement of an interest rate cut / TradingView

Impact of the FED rate cut

This Wednesday, the Federal Reserve announced a 25 basis point interest rate cut, leaving them at 4.50%, as expected by the market. Despite this cut, projections for 2025 indicate that there will be fewer reductions. This generated concern in the cryptocurrency space. Only one Fed official opposed this decision, pointing to a lack of consensus on current monetary policy.

Investors sold bitcoin on speculation that interest rate policy may no longer be so relaxed. Powell confirmed that they are close to the time to slow down the rate cut.

CME Group data suggests that by January 29, 2025, the rate could remain at 4.50%, as 93.6% of money market participants do not expect further cuts as inflation continues to exceed 2%. This high-rate environment tends to benefit the dollar, which in turn weakens risk assets like Bitcoin.

The dollar pushed strongly to 108.2 points on its DXY index, breaking through resistance at 107.32 points.

Bitcoin's Resilience

Despite the recent drop, Bitcoin continues to show an upward trend in the short and medium term, staying above the EMA50 and EMA200 exponential moving averages. Analysts attribute this strength to the rise to power of the new US President, Donald Trump, and his proposal to create a Bitcoin reserve similar to the one existing for gold.

At his press conference, FED Chairman Jerome Powell answered questions about this Bitcoin reserve, indicating that any move in this direction would require Congressional approval.

Capital Flowing Into Bitcoin ETFs

The Bitcoin price is also benefiting from a notable increase in the flow of capital into derivative products, particularly ETFs. Since November 27, the net capital inflow into Bitcoin ETFs exceeds $600 million daily, accumulating a total of $120.33 billion until December 17, 2024.

Assets under management (AUM) also hit an all-time high of $123.34 billion. While the market capitalization of Bitcoin ETFs rose to $123.87 billion on the same date. Additionally, Bitcoin open interest hit a new record high of $68.13 billion.

As the cryptocurrency market navigates an environment of uncertain interest rates and restrictive monetary policies, the future of Bitcoin appears to be a battleground between speculation and regulation. The combination of new political leadership and the steady flow of capital into ETFs could offer some respite to a cryptocurrency that has proven its resilience in difficult times.

Disclaimer: This news is for informational purposes only and should not be considered financial advice. Always do your own research before investing in cryptocurrencies.