The Federal Reserve has announced its third rate cut of the year, lowering the benchmark interest rate range to 3.5%–3.75%. While the stock market responded positively, approaching record highs, Bitcoin experienced a significant drop, falling below $90,000 and triggering a wave of liquidations across the market.
This mixed market reaction underscores a prevailing uncertainty: whether the Federal Reserve's policy shift will be sufficient to support a sustained recovery in the cryptocurrency market, or if persistent inflation and sluggish job growth will continue to fuel market volatility.
Federal Reserve Announcement and Its Significance for Crypto
The Federal Reserve's recent announcement included the following key points:
- •A 25 basis points rate cut, bringing the target range to 3.5%–3.75%.
- •This marks the third rate reduction implemented this year.
- •The unemployment rate has shown an increase.
- •Job gains have significantly decreased, falling to just 20,000 (adjusted).
- •Inflation for goods remains "sticky," partly attributed to tariffs.
- •Only one additional rate cut is anticipated in 2026.
- •The Fed will commence $40 billion in Treasury bill purchases starting December 12th to bolster market liquidity.
Implications of the Rate Cut for Bitcoin
Historically, rate cuts have been supportive of risk assets like Bitcoin. However, the current economic environment presents a more complex scenario due to several factors:
- •Inflationary pressures, particularly for goods, are proving to be persistent.
- •The labor market is experiencing a notable slowdown.
- •The scale of liquidity injections is modest when compared to previous easing cycles.
- •Federal Reserve Chair Jerome Powell's commentary conveyed a cautious rather than an overtly bullish outlook.
These factors contributed to Bitcoin's decline below $90,000 and the subsequent heavy liquidation of long positions.
This market movement is not an outright rejection of cryptocurrencies but rather a reassessment of expectations. Investors had anticipated a more aggressive monetary easing cycle. However, Powell's remarks indicated that the Federal Reserve is pursuing a gradual, defensive, and controlled pivot, distinct from the substantial liquidity injections seen in 2020.
Short-Term Impact of the Rate Cut on the Crypto Market
1. Increased Bitcoin Volatility
Bitcoin (BTC) experienced a price drop to $90,210, reflecting a weekly decline of 2.63%. This movement suggests that the market had expected a more significant response from the Federal Reserve. While rate cuts typically reduce borrowing costs, the persistence of inflation limits the Fed's capacity for aggressive easing measures.
Consequently, the market is facing:
- •Short-term downside risks.
- •Elevated volatility.
- •A higher likelihood of liquidations occurring around the $88,000 to $90,000 price levels.
2. Ethereum's Reaction Relative to Bitcoin
Ethereum (ETH) has shown a weaker performance compared to Bitcoin, with a 24-hour decline of 4.03%, bringing its price near $3,192.
Ethereum's increased sensitivity to macroeconomic tightening stems from several factors:
- •Its reliance on liquidity inflows for price appreciation.
- •The historical tendency of altcoins to underperform Bitcoin during periods of macroeconomic uncertainty.
- •Investor behavior that favors Bitcoin during risk-off market conditions.
Without an improvement in liquidity conditions, Ethereum may continue to lag behind Bitcoin.
3. Altcoins Such as XRP, Solana, and Cardano Experience Deeper Declines
Other altcoins have also registered notable price decreases:
- •XRP: Trading at $2.00, with a weekly decline of 5.86%.
- •Solana (SOL): Trading at $131.15, with a weekly decline of 8.00%.
- •Cardano (ADA): Trading at $0.4165, with a weekly decline of 6.59%.
Altcoins generally bear the brunt of market impact during periods of liquidity uncertainty.
The combination of macroeconomic uncertainty, elevated funding rates, and aggressive leverage in the market has created conditions for pockets of capitulation.