Important Points:
The cryptocurrency market, particularly altcoins, is under pressure due to the slower rate of interest rate decreases.
Chainlink, Cardano, and Shiba Inu all suffer large market losses.
Prices of cryptocurrencies are declining as a result of the Federal Reserve’s recent interest rate announcement.
The Federal Reserve’s Interest Rate Decision and Its Function
The Federal Reserve issued a 25-basis-point interest rate fall on December 18, 2024, its third since September.
The market was taken aback by Fed Chairman Jerome Powell’s pessimistic stance for the future, despite the fact that this cut was anticipated.
Powell said that although the central bank was lowering interest rates, future rate reduction will happen more slowly than expected.
The Fed now anticipates only two cuts in 2025, down from four previously.
Investor behaviour has been affected by this shift in the Fed’s policy position.
Since there are fewer rate cuts coming, investors are growing more cautious, which is causing the market to fall.
Normally, lower interest rates stimulate riskier investments like cryptocurrency.
Introduction: What’s Causing Today’s Altcoin Drop?
The markets for cryptocurrencies have seen a dramatic drop in recent trading sessions. Some well-known altcoins have experienced double-digit declines, including Shiba Inu (SHIB), Cardano (ADA), and Chainlink (LINK).
Although Ethereum and Bitcoin are also declining, the decline in altcoins is more noticeable. However, why is this taking place?
The Fed’s latest announcements, which are impacting investor mood and causing sell-offs throughout the cryptocurrency market, hold the key to the solution.
What Will Happen to the Crypto Market Next?
Government regulations, investor mood, and macroeconomic trends are just a few of the many variables that impact the extremely volatile cryptocurrency market.
As of right now, it seems that the Federal Reserve’s cautious stance to interest rates will cause cryptocurrencies to continue experiencing ups and downs.
Although these triggers are still unknown, the Trump administration and possible regulatory reforms may present growth prospects.
In the upcoming months, investors should brace themselves for ongoing volatility.
Chainlink, Cardano, and Shiba Inu Are Hit the Hardest
In just one day, the price of Shiba Inu (SHIB), a meme currency notorious for its volatility, has dropped by 11.5%. Likewise, both Cardano (ADA) and Chainlink (LINK) have experienced a decline of almost 10%. Due to their high level of speculation, these altcoins have been especially susceptible to changes in the market.
Investors are retreating from these riskier assets as a result of the Fed’s less aggressive rate-cut outlook.
Is It Time to Invest in Shiba Inu or Other Altcoins?
It’s crucial to evaluate the present state of the economy and the outlook for interest rates before thinking about investing in Shiba Inu, Cardano, or Chainlink.
Although some cryptocurrencies, like Shiba Inu, may yield large returns, they are still high-risk investments that are more motivated by speculation than sound fundamentals.
Why Are Cryptocurrency Interest Rates Important?
Investor behaviour is directly impacted by interest rates. Investors can take on debt and invest in high-risk assets like cryptocurrencies at a reduced cost when the Federal Reserve lowers interest rates.
A spike in speculative markets, such as cryptocurrency, is usually fuelled by decreasing interest rates.
But given the Fed’s more conservative outlook for 2025, interest rates might remain high for a longer period of time, which would dampen investor interest in cryptocurrencies.
The market correction and current cryptocurrency sell-off are the results of this.
Citing legal and financial concerns, the Fed rejects the proposal to create a Bitcoin reserve.
The Federal Reserve’s chairman, Jerome Powell, rejects the notion that the US central bank would own Bitcoin.
Powell highlights that Congress, not the Fed, must take action to resolve concerns about the Bitcoin reserve.
Central banks and financial experts strongly oppose the growing debates over a U.S. Bitcoin Strategic Reserve.
Bitcoin and Cryptocurrencies’ Future in U.S. Policy
Powell rejected the notion of a reserve for Bitcoin, but interest in the larger cryptocurrency market is still rising.
Cryptocurrencies’ place in the global financial system will only change as they gain popularity.
However, rather than adopting digital assets as reserve currency, the Fed and the majority of central banks are currently more concerned with the risks involved.
Powell’s speech emphasises that Bitcoin’s function in U.S. monetary policy is still unclear and quite speculative, but the U.S. Treasury and Congress will probably continue to discuss the benefits of a Strategic Bitcoin Reserve in the years to come.
A U.S. Bitcoin Strategic Reserve: What Is It?
In the wake of President-elect Donald Trump’s victory, there has been increased interest in the concept of a U.S. Bitcoin Reserve.
Trump has proposed the establishment of a national Bitcoin stockpile, which might contain 200,000 bitcoins worth $21 billion at current prices, including those captured during illegal activity.
Republican Senator Cynthia Lummis has pushed for legislation that would require the U.S. Treasury to purchase 200,000 bitcoins a year until the reserve reaches one million.
Powell’s remarks, however, indicate that the Fed is not interested in participating in this endeavour, even though demand in such a reserve is growing.
Fed’s Wary Approach to Cryptocurrencies
Powell has maintained the Fed’s position on cryptocurrencies, claiming that the central bank’s job is to make sure that the markets don’t endanger the safety of consumers or the banking industry.
Powell clarified in his comments that although the Fed does not directly control cryptocurrencies, it does monitor how these companies interact with the conventional banking system in order to maintain financial stability.
Powell said the Fed would not seek to establish or oversee a Bitcoin reserve, leaving those decisions to Congress.
Because of the volatility and speculative nature of assets like Bitcoin, the Fed continues to be highly sceptical of cryptocurrencies.
Is Bitcoin Going to Be a Reserve Asset Someday?
There are various obstacles to the concept of a Strategic Bitcoin Reserve:
Legal and Political Obstacles: Major legislative reforms would be needed before the U.S. Treasury could purchase and hold Bitcoin.
Financial Market Volatility: Given its history of abrupt price fluctuations, Bitcoin’s appropriateness as a trustworthy store of value for national reserves is called into question.
Global Opposition: Because cryptocurrencies like Bitcoin are unstable, several central banks around the world, particularly those in Europe, have rejected the idea of utilising them as reserve assets.
The Federal Reserve’s stance on Bitcoin is still unambiguous: even though there is increasing support for a U.S. Bitcoin Reserve, the central bank has no intention of participating in such endeavours.
Instead of adopting cryptocurrencies as reserve assets, the Fed will continue to concentrate on regulatory monitoring due to Bitcoin’s persistent volatility and limited usefulness as a reliable store of value.
Congress and politicians, not the Fed, are currently in charge of determining the future of Bitcoin reserves.
