In summary
- Bitcoin fell to $93,000, its lowest level since Nov. 26, after hitting a record high of $108,000 less than a week ago.
- The Fed’s restrictive stance, which foresees fewer rate cuts in 2024, contributed to the 13% drop in the price of Bitcoin in one week.
- Ethereum and Solana recorded declines of 18% and 15%, respectively, while Dogecoin fell 22%, leading the losses among memecoins.
The price of Bitcoin fell below $93,000 on Monday, hitting its lowest price in almost a month — since Nov. 26 — as the so-called Christmas rally failed to materialize and crypto charts looked as red as the holiday icon’s suit.
Less than a week ago, the leading Cryptocurrency was trading above $108,000, hitting a record price as the holiday season approached. But, in a Scrooge-worthy twist, a more restrictive Federal Reserve hurt the asset’s price by expressing a more cautious approach to rate cuts next year.
Lower interest rates tend to be favorable for Bitcoin and other “risk assets” like stocks. As borrowing becomes cheaper, investors typically look for riskier assets that could produce better returns than the payments that come with holding safer ones like cash and U.S. Treasury Bonds.
When the Fed cut its benchmark interest rate by 25 basis points to a target range of 4.25% to 4.5% last week, policymakers signaled there would be fewer rate cuts next year than expected. investors had previously anticipated. Among Fed officials, a majority forecast two rate cuts next year, down from the four cuts projected by US central bank officials in September.
Inflation has slowed sharply from its peak of 9.1% year-over-year in June 2022, according to the US Bureau of Labor Statistics’ Consumer Price Index, registering a 2.7% increase over the 12 months. As of November, the latest report, however, showed that inflation still remains above the Fed’s 2% target.
Since the Fed began cutting interest rates in September, a 100 basis point reduction in the U.S. central bank’s benchmark rate has given policymakers more room to maneuver, Powell explained.
“With today’s action, we have reduced our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive,” Powell said. “Therefore, we may be more cautious in considering additional adjustments to our policy rate.”
As market participants have mulled the Fed’s hawkish tone, the price of Bitcoin has fallen 13% in the last week, while Ethereum and Solana have fallen 18% and 15% to $3,300 and $186, respectively, in the same period, according to data from CoinGecko.
Among altcoins, XRP price has held up slightly better, recording a 12% drop to $2.18 in the same period. As memecoins have been the most affected by the recent market path, the price of Dogecoin has fallen 22% to $0.31 in the last week.
Typically, a “Santa Claus rally” can emerge during the last five trading days of the year, followed by the first two trading days of the New Year, according to MarketWatch. And while the stock market will be closed for Christmas, cryptocurrencies will continue to trade 24 hours a day, as always.
While the crypto market will likely see less trading activity for the rest of the year, that doesn’t mean investors should hang their hats on Santa’s prospects, according to BRN analyst Valentin Fournier.
“With institutional activity expected to decline and retail trading volumes anticipated to remain subdued through the final two weeks of the year, volatility should continue to decline,” he wrote in a Monday note. “While the ongoing negative momentum could lead to small losses, a sharp rebound remains possible.”
Edited by Andrew Hayward
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