Bitcoin Hits Record $106K, Retreats on Hawkish Fed Rate Cut Fears

Bitcoin (BTC) skyrocketed to a new all-time high of $106,500 in the early Asian trading hours, only to pull back sharply to $104,500 as investors braced for a potentially hawkish Federal Reserve rate cut later this week.

Fed Rate Cut: Hawkish Tone in Focus

The U.S. Federal Reserve is widely expected to announce a 25 basis point rate cut on December 18, bringing the benchmark interest rate down to a range of 4.25% to 4.5%. This move marks a cumulative easing of 100 basis points since September. However, concerns are mounting that the Fed’s accompanying guidance will signal slower or fewer rate cuts in 2025, casting uncertainty on risk assets, including Bitcoin.

The central bank’s dot plot, a projection of future interest rate paths, and updated economic forecasts will be released alongside the decision at 14:00 ET, followed by Fed Chair Jerome Powell’s press conference at 14:30 ET.

Analysts Warn of a ‘Hawkish Cut’

Market strategists caution that while a rate cut is almost certain, the Fed may downplay expectations for aggressive easing next year.

“We suggest the risk of a ‘hawkish cut,’ where the Fed signals fewer rate cuts than expected and acknowledges stronger-than-expected economic growth,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

The previous dot plot, released in September, projected 2.5 points of rate cuts by 2026, potentially bringing rates below 3%. Analysts believe the Fed could revise this projection downward, citing persistent inflation and a resilient U.S. economy.

Should the Fed adopt a more hawkish stance, Treasury yields and the U.S. dollar could continue their upward trajectory. This would likely put downward pressure on Bitcoin and other risk assets, which have thrived on expectations of looser monetary policy.

Why Bitcoin’s Bull Case Remains Intact

Despite near-term concerns about the Fed’s stance, Bitcoin’s broader bull case remains strong. The cryptocurrency historically benefits from:

• Bullish seasonality during December and January.
• Positive regulatory sentiment, with President-elect Trump signaling a favorable stance toward crypto markets.
• Global liquidity expansion, driven by rate cuts in China and other major economies.

“The macro narrative remains supportive. A global rate-cutting cycle, rising liquidity, and China’s monetary easing keep the bull case for BTC intact,” noted LondonCryptoClub analysts.

The Fed’s decision comes at a time when markets are closely monitoring core PCE data, the central bank’s preferred inflation measure. This report, due later in the week, will reveal whether recent inflation upticks are a temporary anomaly or indicative of a sustained rebound in price pressures.

Outlook for Bitcoin and Crypto Markets

While the Fed’s commentary could trigger short-term volatility, Bitcoin’s strong fundamentals, growing institutional adoption, and favorable macroeconomic backdrop suggest any pullbacks may be short-lived. Investors will closely watch Powell’s tone for clarity on the Fed’s 2025 outlook, as it will dictate the trajectory of both traditional and crypto markets.

Read more: How the Federal Reserve’s Rate Cuts Impact Bitcoin and the Broader Cryptocurrency Market