Bitcoin fell below the $86,000 mark, but gold reached a historical high, with funds quietly repositioning.
'If we do not adjust our policies, we will face an increasingly severe risk of economic recession.' The latest remarks from Federal Reserve governor Milan suddenly shifted the market's expectations for a rate cut.
Just yesterday, the Federal Reserve governor appointed by Trump this year warned of the risk of economic recession while stating that the 'necessity of a 50 basis point rate cut has diminished.' This seemingly contradictory signal caught investors off guard.
The market immediately reacted, with the dollar index pressured downwards, while gold prices soared to a historical high of $4480 per ounce. Meanwhile, Bitcoin fluctuated around $86,000, seemingly lost in direction.
01 Expectation of interest rate cuts takes a sharp turn.
The Fed's third rate cut this year has instead left the market feeling cold. On December 18, the Fed announced a 25 basis point cut but simultaneously released strong 'hawkish' signals.
The dot plot shows that Fed officials expect only two rate cuts in 2025, which is far from the four predicted in September. Fed Chair Powell also acknowledged that this rate cut is a 'daring decision' and emphasized that 'from now on, we will take a cautious approach to further rate cuts.'
What is more concerning is the rare divergence within the Federal Reserve. Cleveland Fed President Mester tends to maintain interest rates, while Milan has supported larger cuts in three consecutive meetings.
This divergence makes it difficult for the market to grasp the future policy direction.
02 Market liquidity alarm sounds.
Bitcoin has fallen about 30% from its historical high at the beginning of October, and this downward trend highlights the macroeconomic shift.
Surprisingly, there has been an abnormal phenomenon of simultaneous declines in risk assets and safe-haven assets. Not long ago, both Bitcoin and gold prices declined together, a situation that usually only occurs when there is a systemic contraction in market liquidity.
"The market is undergoing a deeper liquidity stress test," pointed out Ding Yuan, the director of the New Fire Research Institute, noting that in times of liquidity tightness, the market treats all types of assets 'equally.'
The only assets that can truly hedge in extreme market conditions are cash, short-term government bonds, and other highly liquid assets.
In the last 24 hours, the total liquidation amount of cryptocurrency contracts across the network reached $270 million, with over 110,000 individuals facing liquidations, of which long positions accounted for more than 85%. This indicates that market leverage is rapidly being de-leveraged.
03 The unique dilemma of cryptocurrencies.
Unlike traditional markets, the response of cryptocurrencies to the recent Fed rate cuts has been quite muted. After the cuts, Bitcoin and Ethereum fell by 2.8% and 3.6%, respectively.
Three core factors underpin this abnormal performance:
First, the market has already priced in the expectation of interest rate cuts. Before the cuts, investors had already bought heavily, and when the actual cuts arrive, there is a lack of new buying pressure.
Second, the inflow of institutional funds has slowed. Standard Chartered recently significantly lowered its Bitcoin price forecast, reducing its year-end target from $200,000 to around $100,000, citing that 'large holders' positions have become saturated.'
Most importantly, the correlation between cryptocurrencies and US stock market trends is strengthening. When US stocks fall due to liquidity concerns, cryptocurrencies also find it hard to remain unscathed.
04 Smart money is quietly positioning.
Despite facing short-term pressure, smart money is quietly positioning. Michael Saylor's strategic company has bought nearly $1 billion worth of Bitcoin for the second consecutive week.
At the same time, the strong performance of gold may signal a rebound opportunity for cryptocurrencies. Historical data shows that when gold strengthens, Bitcoin often follows suit, as both benefit from expectations of US dollar liquidity.
"The fundamentals of the Bitcoin market still exist," said Zhao Wei, a senior researcher at OKX Research Institute. The trends of global asset diversification, increasing long-term funds, and rising institutional participation all lay the foundation for Bitcoin's potential future rise.
Personnel changes at the Federal Reserve have also become a focus of market attention. Trump stated that he would announce the new Fed chair candidate in early January next year and clearly hopes to choose someone who 'strongly advocates for significant rate cuts.' This expectation may reignite market enthusiasm.
As the remarks of Fed Governor Milan continue to ferment, market funds are quietly repositioning. Gold prices have reached a historical high, with COMEX gold futures breaking through $4480 per ounce.
The correlation between Bitcoin and the US stock market has reached a historical high. Once the Federal Reserve's policy becomes clear, the pent-up liquidity may seek new outlets.
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