bitcoin The leading cryptocurrency by market value has fallen following the Fed’s overnight rate cut. The reason probably lies in the Fed’s messaging, which has made traders less enthusiastic about future easing.
On Wednesday, the Federal Reserve cut the benchmark interest rate by 25 basis points to 3.25% as expected and announced it will begin purchasing short-term Treasury bills to manage liquidity in the banking system.
However, BTC was trading below $90,000 at press time, representing a 2.4% decline since early trading hours in Asia, according to data from CoinDesk. Ether was down 4% to $3,190, and the CoinDesk 20 index fell more than 4%.
The risk aversion is likely due to growing signs of internal divisions at the Fed over how to balance controlling inflation with employment goals, along with signs of a more challenging path to future rate cuts.
Two members voted for no change on Wednesday, but individual forecasts revealed that six FOMC members felt a cut was not “appropriate.”
Furthermore, the central bank suggested just one more rate cut in 2026, disappointing expectations of two or three rate cuts.
“The Fed is divided, and the market has no real idea of the future path of rates between now and May 2026, when Chairman Jerome Powell will be replaced. Replacing Powell with a Trump loyalist (who will push to lower rates aggressively) is probably the most reliable signal for rates. Until then, however, there are still 6 months to go,” Greg Magadini, head of derivatives at Amberdata, told CoinDesk.
He added that what is most likely at this point is a necessary “deleveraging” or “market downturn” to decisively convince the Federal Reserve to lower rates.
Shiliang Tang, Managing Partner at Monarq Asset Management, said that BTC is following the stock market decline.
“Cryptocurrency markets initially spiked on the news, but have been steadily declining since then, along with stock market futures, with BTC testing but unable to break the local high of $94k for the third time in two weeks,” Tang told CoinDesk.
He added that implied volatility has continued to slide lower once we’ve moved past the last major market catalyst of the year.
Liquidity management, not QE
While the crypto community has been quick to call the Federal Reserve’s reserve management program the old quantitative easing (QE) that encouraged unprecedented risk-taking in 2020-21, that is not necessarily the case.
The reserve management program involves the Federal Reserve purchasing $40 billion in short-term Treasury bills. While this expands its balance sheet, it is primarily done to address liquidity strains in money markets without committing to a balance sheet expansion or sustained suppression of yields.
Traditional QE focused on long-duration Treasuries and mortgage-backed securities to aggressively reduce long-term yields and inject trillions into the economy, directly boosting liquidity for speculative investments.
Steno Research founder Andreas Steno Larsen put it best on
According to some observers, the latest program implemented is a preemptive strike against possible 2019-like instability in the money markets.
“Rather than risk a 2019-style fight, the Fed is quietly buying a cushion now. This is simply a matter of the Fed making sure the financial system has enough breathing room to get through the spring without something breaking,” said pseudonymous observer EndGame Macro.
