Bitcoin national reserve dream shattered? Powell’s words crashed the crypto market

Author: Gyro Finance

The long-awaited interest rate cut arrived as scheduled, but the market was not as cheery as usual.

In the early morning of December 19, Beijing time, the Federal Reserve announced its last interest rate decision of the year, deciding to lower the target range of the federal funds rate by 25 basis points to 4.25%-4.50%, successfully achieving the third consecutive interest rate cut. So far, the Fed's cumulative reductions in this round of interest rate cuts have reached 100 basis points.

Even if there is selling of facts, the release of liquidity is a great thing for risk markets, but this time, it is different. The U.S. stock market was the first to fall in respect and set the price with actions. Choice data shows that as of the close on the 18th Eastern Time, the Nasdaq fell 3.56% and the S&P 500 index fell 2.95%. The Dow Jones Industrial Average plummeted 1,000 points, or 2.58%, falling for the 10th day in a row, the longest losing streak since October 1974.

The crypto market followed suit, with Bitcoin once falling below $100,000 and hitting $99,000. ETH fell by as much as more than 7.2%, and the altcoin sector fell by more than 10%. Why did this interest rate cut lead to such a result?

01 Hawkish expectations caused market panic, Powell slapped Trump in the

face

Interest rate cuts are a good thing, but risk market speculation revolves around two words - expectations. While cutting interest rates, Federal Reserve Chairman Powell issued a long-awaited hawkish statement, saying that the decision to cut interest rates in December was more challenging, but the "right decision." He emphasized that the Fed should be "more cautious" when considering adjusting policy interest rates in the future. Whether the Fed cuts rates in 2025 will be based on future data rather than current forecasts, and the Fed will wait until inflation improves before considering further cuts.

Compared with the relatively unanimous votes in previous decisions, this interest rate cut also ushered in differences. Cleveland Fed President Hammack voted against the interest rate resolution and believed that this interest rate cut should be skipped, reflecting that the resistance to interest rate cuts continues to increase. .

In the economic outlook released by the Federal Reserve that day, the economic growth rate was raised and the unemployment rate was lowered, which also showed the Fed's hawkish stance. Judging from the dot plot, based on this outlook, 10 of the 19 Federal Open Market Committee members believe that the target range for the federal funds rate will fall to between 3.75% and 4% by the end of 2025, taking into account the so-called "more "Crudent", based on 25 basis points, the Fed seems to be able to cut interest rates at most two times next year, which is a larger retracement than the four expected in September.

Against this background, it is understandable that U.S. stocks, which have already digested the news of an interest rate cut in December, will fall sharply. After all, whether there will be a soft landing in the market outlook remains to be considered. In fact, from a macro perspective, the severity is still within control. Despite the nascent hawkish rhetoric, there is still consensus on an interest rate cut in 2025, although the neutral interest rate has increased. From the perspective of the Federal Reserve, this hawkish statement is likely to be an early warning in response to the uncertainty of Trump's subsequent administration, thus leaving a certain amount of space to prevent the inflation caused by Trump's policy proposals.

Although expectations of interest rate cuts have a significant impact on risk markets, the disaster of cryptocurrency is even worse. Powell's words caused Bitcoin to fall by more than 5% and further crashed the encryption market. According to Coinglass data, as of 5 p.m., more than 260,000 people around the world have been liquidated in the past 24 hours, with $780 million in liquidated positions across the entire network, $661 million in long positions, and $118 million in short positions.

At the press conference, when Powell was asked whether the Fed would establish a national reserve of Bitcoin, he responded, “We are not allowed to own Bitcoin. The Federal Reserve Act regulates what the Federal Reserve can own, and the Federal Reserve Not seeking changes. This is something Congress should consider, but the Fed does not want to change the law. "

Powell's attitude undoubtedly reflects his opposition to cryptocurrencies. The Fed does not consider including Bitcoin on its balance sheet and does not want to talk about the issue. During this term, Powell has made it clear that he will not resign, and Trump has no power to replace him.

Coincidentally, not long ago, Trump also published his usual "great theory", saying that he would do some great things in the field of cryptocurrency. When answering whether the United States will establish a Bitcoin strategic reserve similar to the oil reserve, When asked, he even said bluntly: "Yes, I think it will." Earlier, an anonymous transition team source also revealed that Trump hopes to have Bitcoin exceed 15 during his term. Thousands of dollars, because cryptocurrency "is another stock market" for it. Considering Trump's stated theory that "the stock market is everything", this news has high credibility.

On December 17, market news came again, saying that Trump planned to establish a Strategic Bitcoin Reserve (SBR) through an executive order and planned to use the Treasury Department’s Exchange Stabilization Fund (ESF) to purchase Bitcoin, and the asset is now has exceeded US$200 billion. On the same day, the Bitcoin Policy Institute drafted the full text of the executive order and stated that the order will take effect after Trump takes office and signs it.

Stimulated by a series of news, the Bitcoin national reserve plan seems to be just around the corner, and the market also has high hopes for it. The votes for Bitcoin reserves on Polymarket continued to increase from 25% to 40%. Yesterday, Bitcoin continued to rise. Hitting the new mark of US$110,000. But Powell's speech at this time is undoubtedly a direct slap in Trump's face. If the Federal Reserve does not cooperate, it is obvious that the so-called national reserves will encounter strong obstacles.

02 The Federal Reserve has no intention, and the national reserve of

Bitcoin is in trouble

Take the Bitcoin Act first proposed by Senator Cynthia Loomis as an example. This bill requires the government to purchase up to 200,000 Bitcoins per year within 5 years, with a total amount of 1 million. Based on a calculation of US$100,000 per coin, excluding the premium in the purchase, the government needs to raise at least US$100 billion. In terms of detailed operations, the source of funds can be composed of three parts. One is to use the Federal Reserve's treasury remittances, up to 6 billion US dollars per year. The probability of this option is small, because the Federal Reserve is still in the red, with a loss of more than 200 billion US dollars. In fact, , the Fed has not sent any funds to the Treasury since September 2023. The second is to transfer it to the General Fund of the Treasury through the Federal Reserve's capital surplus account. This method has been used in the "FAST (Repairing American Surface Transportation) Act", but if it is used to purchase Bitcoin, there is a high probability that it will cause public concern about the Federal Reserve. Doubts about independence.

Compared with the first two, the third option is more feasible, which is to adjust the fair value of gold according to the market price and let the Federal Reserve market the proceeds from the official value of the Treasury’s gold reserves. According to the financial report released by the Federal Reserve, the official reserve assets of the Federal Reserve are gold, Special Drawing Rights and coins. Gold refers to the Treasury Department’s gold dollar-denominated certificate, calculated at an official price of slightly more than $42.22 per troy ounce. , the nominal price is US$11 billion. If calculated based on the market price of US$2,700, the reserve will reach US$703.4 billion. In fact, looking at the three methods, no matter how to buy Bitcoin, the U.S. Treasury Department needs the full support of the Federal Reserve.

On the other hand, the U.S. national reserve assets need to be highly liquid to help maintain the U.S. dollar’s ​​international reserve currency status and serve as the last resort for payment. From this perspective, Bitcoin, which is highly volatile, does not seem to meet the standards. If the U.S. government purchases Bitcoin on a large scale, although it will further push up its price, Bitcoin will be highly concentrated on the government side. When it comes to large-scale sales, the impact of slippage and volatility will be more than a little bit, and even eventually This will make the government bear this huge impairment loss, not to mention that the rise of non-sovereign currencies will more or less weaken the global recognition of the US dollar.

Due to the superposition of multiple reasons, the Fed's dislike of cryptocurrencies is deeply rooted in the bones. Powell has also expressed his opposition to cryptocurrencies many times before. It is worth noting that in this statement, Powell also left room for “this is something that Congress should consider.” That is, Congress can amend the bill to include Bitcoin in reserves, but considering the complex entanglements of interests and extensive The extent of the impact and the possibility of functional modification are minimal.

This is why the Foreign Exchange Stabilization Fund purchases are relatively more credible. Different from the Federal Reserve path, this fund is affiliated to the U.S. Treasury Department. With the consent of the President, the Treasury Department can bypass congressional appropriations and directly use ESF to conduct gold, Trading in foreign exchange and other credit and securities instruments is relatively flexible.

Overall, although Trump has won both houses of Congress during this term, his power has been highly concentrated, and he has actively announced relevant plans, but from a probabilistic analysis alone, the possibility of Bitcoin becoming a U.S. strategic reserve asset is still very high. Low. But for Trump, who takes an unconventional path, anything is possible. After all, from a practical perspective, the U.S. government has more than 210,000 Bitcoin holdings, ranking first among governments in the world. If the reserves are partially replaced, the appreciation of Bitcoin can still play a very positive role in the debt-ridden United States.

03 Institutional FOMO is rising, and the crypto market cannot escape path

differentiation.

In the long term, despite the brief encounter with Black Thursday, the future of the crypto market remains bright with foreseeable regulatory benefits. For the upcoming 2025, institutions have also shown high optimism.

Bitwise gave clear price data in its 2025 forecast, stating that the number of countries holding Bitcoin will double, Bitcoin ETFs will also see more inflows, and Bitcoin will reach US$200,000. If strategic reserves are realized, There will be no cap and the price will reach one million US dollars in 2029. Ethereum will undergo a narrative shift in 2025, driven by Layer 2, stablecoins, and tokenization projects, reaching $7,000, with Solana pointing directly at $750. In addition, it also stated that 2025 will be the first year of IPOs for crypto companies, and Coinbase will also become the largest trading broker.

VanEck's expected stage is clearer, saying that the cryptocurrency bull market will continue to develop in 2025 and reach its first high in the first quarter. At the peak of this cycle, Bitcoin’s price is expected to be around $180,000, while Ethereum’s price will exceed $6,000. Other well-known projects such as Solana and Sui may surpass $500 and $10 respectively. After the first quarter, the price of BTC is expected to correct by 30%, while the decline of altcoins is even greater, reaching 60%. The market will consolidate in the summer, and will then rebound in the autumn, with major tokens regaining growth. A return to previous all-time highs before the end of the year.

Compared to Bitwise, VanEck is more optimistic and believes that Bitcoin reserves will become a reality. The federal government or at least one state (such as Pennsylvania, Florida or Texas) will establish a Bitcoin reserve, and also expects to use government resources for mining The number of countries will increase from the current seven to double digits. On the other hand, VanEck also made predictions about subdivisions, believing that stablecoins, DeFi, NFT, Bitcoin Layer-2, RWA, and AI agents will all usher in rapid development. By 2025, the transaction volume of DEX will exceed 4 trillion US dollars, accounting for 20% of CEX spot trading volume; NFT trading volume reached 30 billion US dollars; Bitcoin Layer-2 lock-up volume (TVL) reached 100,000 BTC; the total value of security tokenization exceeds 50 billion US dollars; the on-chain activities of AI agents will also exceed 1 million.

Presto's predictions are also consistent, indicating that the Bitcoin price will reach $210,000, the ETH/BTC ratio will rebound to 0.05, Solana will break through $1,000, and it believes that a sovereign country or an S&P 500 company will include Bitcoin in its treasury reserves.

Judging from last year's predictions, VanEck's prediction success rate is about 56.6%, and Bitwise's prediction success rate is also about 50%. Therefore, from an institutional perspective, the credibility is pretty good. Overall, around 200,000 is the peak expected by institutions for Bitcoin in the next year, and Ethereum is around US$6,000-7,000. Institutional bullish sentiment is very strong.

However, judging from the current obvious path differentiation, risks are still everywhere in what seems to be a good bull market, especially altcoins, which are most vulnerable to liquidity. In fact, even today, many altcoin holders will find that the price of the currency has not even returned to the previous bear market level.

The lack of market liquidity can also be seen from Binance's new currency. The currency listing effect of "Universe Exchange" is continuing to weaken, and the rise and fall have become the main theme. According to Gyro Finance statistics, as of December 19, the average decline of the 10 new tokens on Binance since November has exceeded 57.94%. Taking PENGU, which was just listed on December 17, as an example, it soared to 0.07 and then quickly retreated. , now reported at 0.033, a decrease of 51.81%.

It is precisely because of market difficulties and numerous doubts that Binance Wallet recently launched the Binance Alpha function, hoping to activate the trading volume by opening up potential tokens with low market value, stimulate the wallet ecosystem, and maintain the leading advantage in the fierce market competition. However, from the current point of view, the short-term platform activity has increased significantly, and the long-term effects still need to be discussed.

From this point of view, in this bull market, holding mainstream tokens may be the best choice. Currently, the crypto market has rebounded, with Bitcoin currently trading at $101,652 and ETH at $3,674.