Why Bitcoin Dropped After the Fed Rate Cut

• The Federal Reserve delivered a widely anticipated 25-basis-point interest-rate cut on October 29, lowering the target range to 3.75% – 4.00%
• Chair Jerome Powell said that a further cut in December is “not a foregone conclusion” 
• Following Powell’s statement, Bitcoin slid roughly 3%, while Ethereum, XRP, and other altcoins lost between 2% and 5%

The Federal Reserve delivered a widely anticipated 25 basis point interest-rate cut on October 29, lowering the target range to 3.75%-4.00%. What surprised markets, however, was Chair Jerome Powell’s statement that a further cut in December is “not a foregone conclusion.” 

To be more precise, he stated: “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course.”

Related: Trump Calls on ‘Too Late’ Powell, Urges Rate Cut From APEC Summit

Interestingly, there was a division between Fed officials, where some members supported a larger interest-rate cut (50 basis point cut) to stimulate the economy, while others didn’t want a cut at all.

Though traditional financial markets showed limited movement, cryptocurrencies fell more sharply. Bitcoin slid roughly 3%, while Ethereum, XRP, and other altcoins lost between 2% and 5%. 

The conclusion could be made that traders had already expected the rate cut to happen, but the real surprise was the cautious tone about future plans, which is what triggered the sell-off.

Why crypto felt the heat

Cryptocurrencies tend to rise when there’s excess liquidity and investors are feeling optimistic. Normally, easier monetary policy (lower rates, weaker dollar, and similar) serves as a tailwind for crypto. 

However, with Powell signaling that further cuts may not follow, the dollar strengthened and Treasury yields rose, which are two factors that tend to dampen risk assets and deprive crypto of one of its key supportive forces.

In essence, the market got the rate cut it wanted, but not the promise of more help ahead, so traders decided to sell based on the actual news.

As it stands now, if the dollar stays strong and returns on safe bonds remain high, crypto prices could continue to face challenges.

Liquidity Map: QT Halt vs December Uncertainty

Also, the Federal Reserve has announced it will halt its balance sheet reduction (quantitative tightening) on December 1, which is something that may ultimately increase systemic liquidity. It could be a potentially favorable development for the longer term.

Still, with Powell’s announcement, Bitcoin and altcoins could enter a phase of increased volatility and uncertainty, with outcomes heavily dependent on economic reports and general market mood.