The Fed Opts for Stability, Bitcoin Benefits
Following the latest announcements by the Federal Reserve, cryptocurrency investors have reason to be satisfied. As the Fed decided to keep its rates unchanged and hinted at two additional rate cuts in 2025, the Bitcoin price immediately surged towards $88,000.
In its statement, the US central bank confirmed its intention to keep interest rates within the current range of 4.25% to 4.5%, a stance widely expected by market participants. Despite revised economic growth forecasts, Fed Chair Jerome Powell reiterated that combating inflation remains the top priority.
Simultaneously, the Fed announced a significant reduction in its balance sheet reduction program (quantitative tightening or QT). The monthly Treasury securities purchase cap will be lowered from $25 billion to $5 billion. This highly anticipated decision fueled risk appetite, particularly benefiting Bitcoin.
Lower Interest Rates on the Horizon for 2025
Crypto investors also welcomed the Federal Reserve’s monetary policy outlook for 2025. The institution hinted at the possibility of two rate cuts next year, a development warmly received by markets. These expectations of future easing further bolster the current bullish momentum of Bitcoin, now aiming for $90,000.
Studies, such as those from ScienceDirect, indicate that Bitcoin prices have increasingly responded to US monetary policy changes since 2020.
In a year marked by ongoing economic uncertainties, the US Federal Reserve has opted for a cautious and flexible approach. This decision reassured investors, who promptly rewarded Bitcoin by propelling it to new highs. The sustainability of this positive momentum in the coming weeks remains to be seen, given the cryptocurrency market’s inherent volatility.
While unchanged rates were expected, the announcement of QT reduction came as a pleasant surprise. However, the impact of QT reduction often takes longer to materialize.
The impact of QT on markets, including Bitcoin, is typically passive as it occurs gradually. The Fed typically announces a QT plan (e.g., monthly reduction of its balance sheet), but the actual reduction takes place upon bond maturities, a slower and more predictable process than immediate QE injections into the market.
According to The Bitcoin Layer expert, this QT reduction is akin to “a passive runoff of securities.” He further notes that when these securities are purchased by the FED, “it’s debt the government doesn’t have to issue in the private market.” This suggests that Bitcoin may continue its upward trend.
