Fed Rate Cut Sends Bitcoin to $104K as Crypto Market Reacts

The Federal Reserve is set to announce a 0.25 percentage point rate cut today, bringing rates to 4.25%-4.50%, marking the third reduction in 2024. This move, widely anticipated by markets, has triggered notable swings in crypto prices, with Bitcoin (BTC) falling to $104,000 after hitting $107,000 earlier this week.

The CME FedWatch Tool reflects a 95.4% probability of the rate cut, with just 4.6% expecting no change. According to Jacob Channel, senior economist at LendingTree:

“The Fed will likely move ahead with another 25-basis-point cut at its December meeting.”

Crypto Market Reactions

The crypto market responded swiftly to the rate cut outlook:

• Bitcoin: Down 2.7% to $104,141, though still up 6.6% for the week.
• Ethereum: Fell 4.5% to $3,842, underperforming compared to BTC.
• XRP: Gained 8.2% weekly, standing out amid broader declines.
• BNB: Dropped 1.0%.
• Solana (SOL): Dipped slightly by 0.2%.
• Chainlink (LINK): Rose 22.5% this week, bucking the market trend.

The total crypto market capitalization fell to $3.8 trillion, reflecting investor caution following the Fed’s decision. Despite this, Tether (USDT) remained stable with $99 billion in daily trades, providing liquidity as volatility gripped major cryptocurrencies.

Economic Context Driving the Rate Cut

The Fed’s decision comes against a backdrop of:

• November inflation: Met expectations at 2.7%.
• Job growth: Added 227,000 jobs in November, signaling economic strength.

However, economists at Goldman Sachs warn:

“Fed officials might prefer to be cautious in light of uncertainty about the new administration’s policies, especially possible tariff increases.”

This measured approach aligns with the one-point drop in rates since September and ongoing concerns about inflation staying above 2%.

Future Rate Cut Outlook

Looking ahead, Gregory Daco, EY’s chief economist, predicts:

“The Fed might plan three rate cuts in 2025 of 0.25 percentage points each, down from four cuts initially projected in September.”

This adjustment reflects a balancing act between strong economic performance and lingering inflation concerns.

Diane Swonk, chief economist at KPMG, further emphasized:

“The economy remains stronger than participants thought it would be when they started cutting in September, while improvements in inflation appear to have stalled.”

These dynamics are expected to continue driving volatility in crypto markets, which react sharply to interest rate adjustments.

Market Expectations for Fed Announcement

The Federal Reserve will officially announce its decision at 2 p.m. EST, with Fed Chair Jerome Powell addressing the press at 2:30 p.m. EST. Traders are bracing for further volatility, as Powell’s remarks are likely to influence sentiment and price movements across financial markets, including crypto.

To hedge against uncertainty, traders have increased options activity on major cryptocurrencies, anticipating significant price swings post-announcement.

As the Fed delivers its third rate cut of 2024, crypto markets remain on edge. While Bitcoin currently sits at $104,000 and Ethereum struggles near $3,842, options trading and liquidity flows suggest traders are preparing for further turbulence. Looking forward, the Fed’s rate trajectory and economic signals will continue to play a pivotal role in shaping crypto price trends into 2025.