Arthur Hayes' prediction of a crypto market crash is already showing signs as the Bitcoin, XRP and other digital assets register a significant dip due to Federal Chair Jerome Powell’s Bitcoin comments. Now, experts have weighed in what this dip means for the crypto market as we enter 2025.
The Federal Reserve Chair Jerome Powell said on December 18 that the US economy remains strong but it can't invest in Bitcoin.
"The U.S. economy is in very good shape right now. It's in remarkably good shape, we are sort of the envy of other large economies around the world, and I'm going to do everything I can to keep it there during the rest of my term, and I feel very good about where the economy is and where monetary policy is," said the Fed Chair.
Powell expressed a hawkish view for reversing rates to the neutral level. As per investment banking firm Evercore the Fed has stopped short of “ challenging the market's growing confidence that a December cut is the base case” , which is also the firm's view.
Powell underlined the speculative nature of Bitcoin by saying that "people use Bitcoin as a speculative asset. It's like gold — it's just virtual and digital.”
He further explained that it isn't “a competitor for the dollar” rather “a competitor for gold.”
These remarks led Bitcoin to rally before dropping to $100,000 level with significant dips in XRP and other coins, sparking comments from crypto experts on social media.
The CEO of Professional Capital Management, Anthony Pompliano, said "Bitcoin is going up because people are realizing central banks and countries don’t hate Bitcoin anymore. Poetic”. However, the 3% decline in Bitcoin market cap and over 700 million liquidations in the crypto market, has made traders believe that Powell's comments might have started a local top, putting a halt to continued rally at the end of December.
The Director of LVRG Research, Nick Ruck explained it as the crypto market entering a peak “ if the U.S. Bitcoin strategic reserve is no longer in play, as this promise helped to fuel the recent months' rally to new all-time highs.”
“Although an interest rate cut would normally have a bullish reaction since it was largely expected, the market strongly reacted after Fed Chair Jerome Powell stated that inflation would be a continuing problem throughout the next year”, he added.
Powell said the Congress should decide if the Central Bank can hold Bitcoin, and it isn't looking for a law change. This comment came at a time when Trump said in his July campaign that the US government will keep 100% of the BTC it was holding or planning to acquire in the future, suggesting a stockpiling of seized Bitcoin.
Experts at Singapore's QCP Capital on the other hand are optimistic about a bullish run as the company stated “don't get shaken out of your positions if a drop occurs. With 2025 poised to be a potentially bullish year for crypto, particularly with Trump in office, staying the course may prove beneficial.”
It's not just the crypto market Powell’s Fed rate cut announcement also sent ripples across the stock market as seen in stocks like Dow Jones going down 1100 points on Wednesday.
The 2.58% decline marks the 10th day decrease in a row, its longest losing streak since 1974 while S&P 500 and Nasdaq went down 2.95% and 3.56% to touch 5,872.16 and 19,392.69 respectively. This was due to Powell's declaration that the Fed will cut rates twice a year from now onwards instead of 4 rate cuts.
Earlier on December 17, the FedWatch Tool of the CME Group had predicted an 81% chance of a 0.25% federal rate cut in January which has now reversed to 9% chance of rate cut after Powell's comments.
According to experts this was a reluctant deduction designed to provide markets a bit of comfort as the Fed did their groundwork for the hawkish 2025 approach.
This caused the Wall Street's volatility index, CBOE VIX,to soar 74% while the decade long US Treasury yield went up by 4.5%.