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Expected Rate Cuts and a More Cautious Fed Policy
FOMC Chairman Jerome Powell announced new data on the Federal rate cuts yesterday. The Committee has decided to reduce the Federal Funds rate by 25 basis points. The pace of easing is expected to slow soon, as several members have recommended a more cautious approach. Fed Chair Jerome Powell said Wednesday that while he’s not “renaming the phase yet,” the commission enters a new chapter in the rate policy process. Presidents of Cleveland, San Francisco, and St. Louis Federal Reserve Banks already expressed their support for such a new strategy.
Much of the recent data supports adopting a more gradual approach. Economic surprise indexes have risen sharply since the first rate cut of this cycle in mid-September, contributing to the rise in Treasury yields over the same period. With inflation remaining sticky and President-elect Trump aiming to strengthen U.S. economic performance, the Fed has signaled a more cautious approach for 2025. It now anticipates a total easing of 50 basis points in 2025, a significant reduction from the 100 basis points projected in September.
Strong USD and Why It Isn’t Important for Bitcoin Right Now
Yield differentials have been a key driver of the dollar’s strong performance since early October. This FOMC meeting is unlikely to disrupt the underlying dollar bull trend significantly. For now, currency markets remain in a holding pattern ahead of President-elect Donald Trump’s January inauguration. Concerns—and expectations—are centered on the possibility of swift tariff actions, which would likely support the dollar.
So far, USD strength has not negatively impacted Bitcoin prices, suggesting that political developments and Bitcoin’s evolving role are driving its price action. This trend is expected to persist until January 20. However, Jerome Powell took a defensive stance on Bitcoin during the meeting, reiterating that “[The Federal Reserve] is not allowed to own Bitcoin.” This declaration likely contributed to a sudden price drop. Still, while a continuation of the Bitcoin sell-off is possible, it seems unlikely given that an increasing number of governments are considering Bitcoin as a reserve asset.
What Are the Reasons for the Recent Rally?
Bitcoin reaching $100,000 this year is attributable to three primary factors:
Relaxed regulation: Approval and launch of Bitcoin ETFs.
Interest rate cuts: Implemented by both the ECB and the U.S. Federal Reserve.
Republican election victory: A clean sweep in the U.S. elections provided strong political tailwinds for Bitcoin
What Are the Price Targets for Bitcoin After $100k?
Valuing Bitcoin involves many methods, but the simplest often prove the most compelling. Bitcoin competes as a form of money, capturing market share from several sources, including global M2, central bank reserves, corporate treasuries (e.g., MicroStrategy), and gold. Currently, Bitcoin represents just 10% of gold’s market share. ETF inflows underscore this shift, with Bitcoin seeing $39.6 billion compared to gold’s $150 million outflows.
Given this context, Bitcoin’s market share of gold could grow to 25%, translating to a price of $250,000. This potential reflects the broader macroeconomic environment, including rate cuts and geopolitics, which traditionally drive gold inflows but are now favoring Bitcoin.
Correction Is Likely, but Probably Without Consequences
Pullbacks are always a possibility—Bitcoin has a well-known history of volatility. However, attention should now shift to the factors driving prices:
The “U.S. election dividend.”
Prospects of the U.S. adopting Bitcoin as a strategic reserve asset (Polymarket estimates only a 32% chance of this happening).
Geopolitical instability.
Looser monetary policy.
These factors are likely to support Bitcoin in 2025. That said, any disappointment related to Trump’s inauguration or delays in enacting the Bitcoin Act could trigger a pullback. Nonetheless, the long-term outlook for Bitcoin remains robust, with significant institutional and governmental interest providing a strong foundation.
