The Federal Reserve’s hawkish stance has sent shockwaves through the cryptocurrency market, with Bitcoin experiencing its worst price drop in three months. In a surprise move, Chairman Jerome Powell cut interest rates by 25 basis points to a range of 4.25-4.5%, sparking fears that future rate cuts will be limited.
The decision led to a significant decline in risk assets, including the Dow Jones, which fell 2.5% or over 1,000 points. Bitcoin’s price plummeted from around $105,000 to under $99,000, according to TradingView and CoinDesk. The dollar index, which measures the value of the US currency against major currencies, is currently holding steady near 108, its highest level since October 2022.
The market’s reaction can be seen in the high volatility premium for put options, with the seven-day call-put skew showing that put options are trading at their highest implied volatility premium to calls since September. This suggests that traders are scrambling to hedge their bullish bets against a potential continuation of Wednesday’s price slide.
The Fed’s decision has also led to a negative one-month skew in options, reflecting a bias for puts and a significantly weaker call bias. The dot plot, which is an anonymous graphical representation of the committee members’ projected future rate cuts, signaled only two rate cuts in 2025 instead of three expected, further fueling market concerns.
As the market continues to grapple with the implications of the Fed’s decision, Bitcoin is currently trading at around $101,200, aiming to recover from overnight losses.
Source: https://www.coindesk.com/markets/2024/12/19/hawkish-fed-has-bitcoin-market-showing-strongest-bias-for-downside-protection-in-3-months