Crypto "Black Thursday": What causes the market outlook?

Deng Tong, Golden Finance

At 3 a.m., the Federal Reserve announced its interest rate decision, cutting interest rates by 25 basis points. Then, Fed Chairman Powell held a monetary policy press conference at 3:30 a.m.

Although altcoins have rebounded after the previous three FOMC meetings. However, after the Federal Reserve officially announced a 25 basis point interest rate cut, the market ushered in "Black Thursday", with Bitcoin falling below $100,000 and altcoins falling by 20%.

What causes "Black Thursday"? What is the future direction of Fed policy? What do people in the industry think of the current market conditions?

1. Risk avoidance mode after high point

According to Coingecko data, BTC price reached an all-time high of $108,135 on December 17.

Subsequently, on December 18, the price of Bitcoin once erased an increase of about 5% to $103,765. Bitcoin's decline triggered panic selling among crypto investors, sending cryptocurrencies down across the board.

Massive liquidation in the derivatives market has accompanied the downturn in the crypto market. US$78.09 million in BTC was liquidated, US$55.65 million in ETH was liquidated, and the crypto market was full of blood.

Total cryptocurrency liquidations. Source: CoinGlass

The dominance of long liquidations suggests that the crypto market is overleveraged on the bullish side , primarily due to profit-taking and risk- off mode ahead of today’s Fed rate cut decision.

Ahead of this FOMC meeting, sellers have dominated the market, and seller pressure reflects the typical risk-off sentiment leading up to the event, with BTC cooling off.

Separately, the ongoing correction in the crypto market also reflects weakness in the U.S. stock market. On December 17, the S&P 500 index fell 0.4% to close at 6050.61 points, and the Nasdaq Composite Index fell 64 points. The Dow Jones fell for the ninth consecutive trading day, its longest losing streak since 1978. It closed down 0.61% on December 17 at 43,339 points.

US stock market 24-hour performance data source: Financial Visualizations

Ahead of the FOMC meeting, market participants have focused on the Fed 's decision to cut interest rates. The Federal Reserve's last interest rate decision in 2024 is a complex and highly volatile event.

2. Cut interest rates by 25 basis points, but Powell made hawkish remarks

This morning, the Federal Reserve's 2024 annual interest rate resolution came to an end. The bank decided to lower the benchmark interest rate by 25 basis points to a range of 4.25%-4.50%. This was the third consecutive interest rate cut, in line with expectations. In eight resolutions this year, the Fed cut interest rates by a total of 100 basis points, including one 50-basis-point rate cut, two 25-basis-point rate cuts, and the other five times it kept interest rates unchanged.

According to the median dot plot of the Fed in December, the Fed expects to cut interest rates twice in 2025, by 25 basis points each time. In September, it expected to cut interest rates four times, by 25 basis points each time. The Fed expects to cut interest rates twice in 2026, by 25 basis points each time. 25 basis points, in line with September expectations. The median forecast for the federal funds rate at the end of 2025 is 3.9%. The previous forecast for September was 3.4%.

Powell 's announcement that the Fed will only cut interest rates twice more in 2025 is undoubtedly a hawkish statement for the market . In addition, the Federal Reserve Board also raised its inflation forecast for 2025 from 2.1% to 2.5%.

Some analysts believe this is because Trump’s taking office will bring about some policy adjustments, such as increasing tariffs on many countries, deporting millions of undocumented workers, and expanding fiscal deficits. Powell emphasized at the press conference that the Fed's policy reset is a signal that the central bank is prepared to adjust policies based on the needs of the U.S. economy.

Powell also said geopolitical instability remains a risk. There is great uncertainty in economic forecasts for the next three years.

In this regard, Gennadiy Goldberg, head of U.S. interest rate strategy at TD Securities , said: The Fed has sent a signal that they will not be as dovish as they have been in the past, and they prefer to cut interest rates less next year. I think this is a signal that the market will continue to Priced with less than two rate cuts, it could be heading towards zero cuts if the data is strong enough. If the Fed doesn't see inflation falling enough, they won't be willing to keep cutting rates.

" Fed spokesperson" Nick Timiraos pointed out that the "magnitude and timing" wording was added to the Fed's policy statement, suggesting that it will slow down the pace of interest rate cuts to modify potential adjustments.

John Haar, managing director of Swan Bitcoin , said: The move to finally lower interest rates and hint at fewer rate cuts next year indicates that future interest rates will be relatively hawkish.

Affected by the Fed's hawkish remarks, U.S. interest rate futures priced the Fed to cut interest rates by about 49 basis points in 2025, which is close to the 50 basis points predicted by the Fed's dot plot. Before the announcement of the interest rate resolution, the market priced an interest rate cut of 75 basis points.

Not only is it expected to cut interest rates, but on whether Trump will establish a Bitcoin reserve, Powell also made it clear that the Federal Reserve has no intention of holding Bitcoin. " We are not allowed to hold Bitcoin," Powell said at a press conference after the FOMC meeting. As for the legal issues of holding Bitcoin, Powell said, "This is something for Congress to consider, but we have no intention of seeking to Change the law."

3. What do industry insiders think of the current encryption market?

Regarding short-term predictions for Bitcoin prices, cryptocurrency analyst Skew said that BTC’s decline cleared “positions” “in both directions” as longs were stopped and “shorts took profits.”

Chris Burniske, a partner at Placeholder , posted on Use this experience as an opportunity to slow down. Don't overtrade. Just be patient and you'll be fine."

Andre Dragosch, Head of European Research at Bitwise , noted: “I think the biggest trouble for the Fed right now is that despite the Fed’s interest rate cuts, financial conditions are still tight. Since September Since last month, long-term bond yields and mortgage rates have been rising, and the dollar has appreciated, which also means that financial conditions have tightened. The continued appreciation of the dollar also poses macro risks to Bitcoin, because the appreciation of the dollar is also related to the contraction of the global money supply. , which tends to be detrimental to Bitcoin and other crypto assets. In fact, the continued reduction in net liquidity from the Fed is also the biggest risk to BTC in my opinion... On the other hand, BTC's on- chain. Factors continue to be very favorable, especially the continued decline in exchange balances, which supports BTC The supply gap continues to grow."

According to Coinglass data, in the past 24 hours, the liquidation amount of the entire network reached 120 million U.S. dollars, of which the liquidation amount of long orders was approximately 109 million U.S. dollars, and the liquidation amount of short orders was approximately 11.0841 million U.S. dollars.

As of press time, the price of BTC fell below $100,000 to $99,422.12, a 24-hour drop of 5.8%.

The price of Ethereum fell below the $3,600 mark to $3,594.01, a 24-hour drop of 7.3%.

Source: CoinTelegraph, CoinDesk, X, Coingecko, Golden Ten Data, Golden Finance