BTC "collapses" after Fed cuts interest rates, Powell affirms Fed cannot own Bitcoin

Fed Chairman Jerome Powell made a frank speech about Bitcoin in the context of President-elect Donald Trump's commitment to establish a national Bitcoin reserve fund.

On the morning of December 19, 2024, the US Federal Reserve (Fed) announced its decision to cut interest rates by another 25 basis points, bringing the interest rate down to about 4.25% - 4.5%.

This is the third consecutive interest rate cut since September and November of this year, after continuously raising interest rates in 2022-2023 to deal with inflation.

The Fed assessed that the US economy still maintains a stable growth rate with low unemployment rate despite high inflation.

In its latest forecast, the agency also raised its 2025 economic growth forecast to 2.1%, while forecasting average inflation to rise to 2.5%, up from the previously announced 2.1%. The unemployment rate is expected to be 4.3%, reflecting the stability of the labor market.

In addition, the US central bank is likely to make two more rate cuts in 2025, each by 0.25 basis points, bringing the benchmark interest rate to 3.75 - 4.0% by the end of the year.

Fed Chairman Jerome Powell later took a hawkish stance on the prospect of continuing the rate-cutting trajectory in 2025 at a press conference. Powell said the US Federal Reserve is projecting a reduction in the frequency of interest rate adjustments next year as inflation shows no signs of cooling and may increase again in 2025.

Whitney Watson, CEO at Goldman Sachs Asset Management, commented:

"Although the Fed ended the year with a third consecutive cut, the focus in the new year seems to be on slowing the policy easing process. I expect the Fed to pause rate cuts in January 2025 before resuming in March 2024."

In response to the Fed's new stance on the prospect of interest rate cuts, Bitcoin quickly "crashed" to $99,500, recording a decrease of 5.7% in the past 24 hours.

Red is also spreading across the market, with top altcoins losing an average of more than 10% of their value compared to a day ago.

The value of derivatives liquidated in the last 12 hours is up to nearly $570 million, with the long side accounting for 89%, with the rate of altcoins burned overwhelming other large-cap coins.

Not only the crypto market, the US stock market also lost more than $1.5 trillion in capitalization in the session on December 18 (US time) after the latest statement from the Fed Chairman.

The U.S. stock market wiped out $1.57 trillion today pic.twitter.com/NUObbbVHDk

— Brew Markets (@brewmarkets) December 18, 2024

The Fed is not allowed to hold Bitcoin

Also in the press conference, Chairman Jerome Powell emphasized that the agency is not allowed to own Bitcoin. The remarks come amid a growing number of ideas and proposals for the US government to use Bitcoin as a national reserve asset. Mr. Powell affirmed:

"Under the Federal Reserve Act, we are not allowed to own Bitcoin, and the Fed is not currently seeking to change the law to do so,"

He explained that, under current regulations, the Fed is only allowed to own certain assets that Congress has authorized, such as US Treasury bonds or securities related to public finances. Bitcoin, while increasingly recognized as a financial asset, does not fall into this category.

In addition, the Fed Chairman added that the decision to change the law so that the Fed can own Bitcoin is a matter for the US Congress. He also emphasized that the Fed, as an independent central bank, will not actively seek changes in the law on this issue. Powell also compared Bitcoin to gold in November, saying it is an effective store of value.

Powell's stance came after President-elect Donald Trump pledged to create a national Bitcoin reserve, similar to what the US has done with oil. When asked if the US would establish a Bitcoin reserve, Trump said:

"We're going to do something great with crypto, because we don't want China, or anybody else who's adopting crypto, to do that, we want to be the leader."

Soon after this move, many experts predicted that Donald Trump would likely sign an executive order on his first day in office to officially make Bitcoin (BTC) a reserve asset.

Not only at the national level, the idea of ​​accumulating Bitcoin has also spread to states in the US. Many states such as Pennsylvania and Texas are actively considering bills to use Bitcoin as a strategic reserve asset to protect the public budget from inflation and global economic instability. Most recently, Ohio also proposed a similar bill, showing the role and potential of Bitcoin in stabilizing and developing local finances.

However, there are also many opinions that the probability of Trump establishing a Bitcoin reserve is very low. Billionaire Mike Novogratz, CEO of veteran investment fund Galaxy Digital, predicts that there may be conflicts between branches of government, hindering this process. He does not think that any other assets are needed to maintain the role of the USD as a global reserve currency.

Explaining the correction, Grayscale head of research Zach Pandl said:

"The drop in Bitcoin prices following Fed Chair Powell's comments suggests that investors may be placing too much stock in the prospect of the US government building a strategic Bitcoin reserve. However, Grayscale Research predicts that more countries will adopt Bitcoin in the future, but the next step is likely to come from sovereign wealth funds in Asia or the Middle East, which already manage extremely diversified asset portfolios."