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The cryptocurrency market is experiencing a significant downturn following Wednesday’s announcement of a 25-basis-point rate cut by the U.S. Federal Reserve (Fed). Although this decision was anticipated, the firm comments from Fed Chair Jerome Powell, signaling a slowdown in future rate cuts and upwardly revised inflation forecasts for 2025, have heightened risk aversion across markets. The total market capitalization of cryptocurrencies dropped by 11.8% within 24 hours, falling to $3.33 trillion, while Bitcoin recorded a decline of over 10%.
According to Aurelie Barthere, a senior analyst at Nansen, Bitcoin’s correction, which has landed it in the $90,700 to $91,000 range, reflects a post-electoral support level. While she initially expected a later correction, she attributes this acceleration to the Fed’s hawkish stance and political uncertainties in the U.S., including ongoing budget negotiations. However, she notes that trading volumes do not indicate panic, suggesting buying opportunities amid a market deemed healthy after the sector’s impressive performance since early November.
Bitcoin-related exchange-traded funds (ETFs) have also been impacted, with record outflows of $680 million on Thursday, ending a 15-day streak of positive inflows. Barthere pointed out that these flows are often price-sensitive, implying that market stabilization will be necessary to curb these withdrawals. The Fed’s more cautious approach, with only two rate cuts projected in 2025 instead of the initially expected four, appears to be weighing heavily on risk assets.
In his post-FOMC remarks, Powell addressed proposals for creating a strategic Bitcoin reserve in the U.S., though the Fed is not authorized to directly hold cryptocurrencies. Such an initiative would require Congressional approval or a presidential executive order.
Bitcoin-related ETFs recorded net outflows of $671.9 million on Thursday, marking an all-time high since their launch in January. According to Farside Investors, the Grayscale Bitcoin Trust (GBTC) was the hardest hit, with $208.6 million in losses, followed by the ARK 21Shares Bitcoin ETF, which lost $108.4 million. These massive outflows coincided with a 9.2% drop in Bitcoin’s price within 24 hours, bringing it below $93,000, according to CoinMarketCap. Wintermute, a major crypto market maker, explained in a note that the cryptocurrency market followed the downward trend of stocks and bonds, with investors reducing risk exposure ahead of the holiday season, which is characterized by low liquidity. This decline intensified after the U.S. markets opened, fueled by increased selling. The Fed’s recent decision to cut its key interest rate by 25 basis points, while adopting a more cautious stance on future rate cuts, amplified this uncertainty. Despite the setback, some experts remain optimistic about Bitcoin’s future. Ajay Dhingra believes that the scheduled departure of SEC Chair Gary Gensler on January 20 could serve as a catalyst for a new bull market. However, he cautions against potential regulatory tightening before Gensler’s term ends, which could trigger another wave of selling.
The SEC (Securities and Exchange Commission) has approved the first hybrid ETFs combining Bitcoin and Ethereum after several months of prolonged reviews since June. These new funds, the Hashdex Nasdaq Crypto Index US ETF and the Franklin Crypto Index ETF, will be listed on the Nasdaq and Cboe BZX Exchange, respectively. The proportions of Bitcoin and Ethereum held by each fund will be based on float-adjusted market capitalizations, with an initial allocation expected to be approximately 80% Bitcoin and 20% Ethereum, according to analyst Eric Balchunas. These ETFs must meet strict transparency requirements regarding their portfolios and pricing, and exchanges will monitor compliance, with the possibility of delisting in case of violations. ETF shares will be subject to prevailing securities rules, with indicative values updated every 15 seconds during trading hours. This approval comes amid sustained activity in existing crypto ETF markets, where BlackRock’s flagship product, IBIT, dominates with $56 billion in assets under management. A key factor contributing to this approval is the surveillance-sharing agreement between exchanges, aimed at preventing fraud and manipulation by exchanging trading data and critical information. This compliance model, aligned with commodity-based fund standards, has enabled the SEC to endorse this hybrid framework, marking progress from single-asset crypto ETFs.
Donald Trump, the U.S. President-elect, has appointed Bo Hines, a former college football player and unsuccessful Republican congressional candidate in 2022, to head his “Crypto Council.” As Executive Director of the Presidential Advisory Council for Digital Assets, Hines will work alongside David Sacks, already designated to oversee cryptocurrency and artificial intelligence matters, to foster innovation and growth in the digital asset sector. Trump stated that this collaboration aims to provide industry leaders with the resources needed to thrive and keep the U.S. at the forefront of technology. Bo Hines, backed by pro-crypto PACs during his 2022 campaign, also received funds from Ryan Salame, a former FTX executive now imprisoned for violations related to illegal political contributions. Despite these endorsements, Hines failed to gain political traction, finishing fourth in his district during the 2024 Republican nomination race.
Additionally, Trump has appointed Stephen Miran, a former Treasury Department official, to chair his Council of Economic Advisors. Miran, a vocal critic of what he deems overly restrictive financial regulation, recently argued that such rules stifle innovation in sectors like cryptocurrency. He particularly noted that current regulations limit banks’ ability to support the economy through lending. These appointments reflect the Trump administration’s stated commitment to fostering digital technology and crypto asset development while reducing perceived regulatory barriers to innovation and economic growth.
MicroStrategy, a leading institutional investor in Bitcoin, recently acquired 5,262 BTC between December 16 and 22, 2024, for a total of approximately $561 million. This purchase brings the total number of Bitcoins held by the company and its subsidiaries to 444,262, with an average acquisition cost of $62,257 per BTC. In this latest transaction, the company paid an average price of $106,662 per Bitcoin, a record for its purchases. Despite this new acquisition, MicroStrategy’s buying pace has slowed compared to previous weeks, during which it accumulated 42,162 BTC in December, representing $4 billion. The latest transaction accounts for just 12% of December’s purchases, marking the lowest amount bought since June and July 2024. This slowdown coincides with warnings from Arthur Hayes, co-founder of BitMEX, about a potential market downturn linked to Donald Trump’s upcoming inauguration. Rumors also suggest a potential temporary halt to Bitcoin purchases by MicroStrategy in January 2025 due to a blackout period limiting the issuance of shares and convertible bonds to finance new investments. Despite these speculations, Michael Saylor, MicroStrategy’s founder, has reaffirmed his commitment to continuing Bitcoin accumulation, even at record prices.
Earlier last week, Bitcoin achieved a new all-time high in market capitalization relative to gold, now representing 14% of gold’s market cap, according to Galaxy Research data. This milestone highlights Bitcoin’s growing prominence as a major asset in global financial markets. Additionally, Bitcoin-related ETFs have surpassed gold ETFs in assets under management, with $129 billion compared to $128 billion for gold ETFs, according to K33 Research. This rapid shift underscores the growing appeal of Bitcoin among institutional investors. Bloomberg’s senior analyst Eric Balchunas noted that Bitcoin ETFs, launched less than a year ago, have redefined institutional interest in cryptocurrencies, nearly matching gold ETFs in record time.
The presented information is as of December 23rd 2024, unless otherwise indicated and is provided for information purposes only. The information comes from sources that we believe are reliable, but not guaranteed. This statement does not provide financial, legal or tax advice. Rivemont Investments are not responsible for any errors or omissions in the information or for any loss or damage suffered.
