Bitcoin tests $100,000 after the Fed triggers the worst decline since September

(Bloomberg) — Bitcoin fell below $100,000, as the Federal Reserve’s dovish outlook on interest rate cuts hurt speculative investments.

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The largest digital asset fell 4% to $96,789 on Thursday in New York — more than $10,000 below the record high set on Tuesday. Other cryptocurrencies, which tend to be more volatile, fared worse. The price of Ethereum fell by 5% while the price of crowd favorite Dogecoin fell by 12%.

Federal Reserve officials cut borrowing costs for the third time in a row, but reduced the number of cuts they expect in 2025. Bank Chairman Jerome Powell said more progress on inflation is needed before further easing of monetary policy. Higher rates tend to reduce the attractiveness of risky assets.

The outcome of the Fed’s meeting should not come as a surprise to investors monitoring the “recent wave of warm US inflation and activity data,” Tony Sycamore, a market analyst at IG Australia Pty, wrote in a note. “However, it served as a catalyst to unwind some of the speculative excesses that flowed into risky assets, including stocks and bitcoin, after the US election,” he said.

Global economic indicators such as interest rates can correlate with volatility in the cryptocurrency market, which is why interest rate cuts can have an impact, according to Jake Werrett, general counsel at dYdX Trading.

“Bitcoin, specifically, is viewed by many investors as a reserve currency, and lower prices mean more cash in circulation, higher inflation, and an increased incentive to invest in store-of-value assets — like bitcoin,” Werrett said.

Bitcoin has risen more than 45% since the US vote on November 5, boosted by President-elect Donald Trump’s pledge to deregulate cryptocurrencies. The Republican also supported the idea of ​​creating a national stockpile of the token.

“All signs point to a good ground and a good future for Bitcoin,” even if some traders were disappointed about the Fed meeting and profit-taking, said Paul Viraditakit, managing partner at Pantera Capital.

Trump’s embrace of cryptocurrencies has overshadowed warnings about extended momentum and the lack of any traditional valuation constraints. The outgoing administration of President Joe Biden clamped down on the industry in the wake of a 2022 market downturn that exposed risky and fraudulent practices.

Sean McNulty, director of trading at liquidity provider Arbelos Markets, reported a post-Fed spike in demand for options to hedge against Bitcoin declines. A pullback to the low $90,000 level is possible for a very short time, according to Zann Kwan, chief investment officer at Revo Digital Family Office.

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