Bitcoin the leading cryptocurrency by market cap, has fallen following the overnight Fed rate cut. The reason is likely to be the Fed’s messaging, which has made traders less enthusiastic about future easing.
The Fed cut its benchmark interest rate by 25 basis points to 3.25% on Wednesday, as expected, and announced it will begin buying short-term Treasury bills to manage liquidity in the banking system.
Still, BTC was trading below $90,000 at press time, representing a 2.4% decline since early Asian hours, according to CoinDesk data. Ether fell 4% to $3,190, with the CoinDesk 20 index down over 4%.
The risk-off action is likely due to growing signs of internal Fed divisions balancing inflation controls against employment targets, combined with signals of a more challenging path for future rate cuts.
Two members voted for no change on Wednesday, but individual forecasts revealed six FOMC members felt a cut was not “appropriate.”
Furthermore, the central bank proposed just one more rate cut in 2026, disappointing expectations for two to three rate cuts.
“The Fed is divided and the market has no real insight into the future path of interest rates between now and May 2026, when Chairman Jerome Powell will be replaced. The replacement of Powell with a Trump loyalist (who will push to cut rates aggressively) is probably the most reliable signal for interest rates. Until then, however, there are still 6 months to go,” said Gregdata director A Gregdata, derivatini. CoinDesk.
He added that the most likely event right now is a necessary “de-leveraging” or bear market” to convince the Fed of decidedly lower interest rates.
Shiliang Tang, managing partner of Monarq Asset Management, said that BTC is following the stock market lower.
“Crypto markets initially rallied on the news but have moved steadily lower since, in conjunction 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 decline with the last major market catalyst of the year behind us.
Liquidity management, not QE
While the crypto community has been quick to call the Fed’s reserve management program the good old quantitative easing (QE) that fueled unprecedented risk-taking in 2020-21, that is not necessarily the case.
The reserve management program involves the Fed buying $40 billion in short-term Treasury bills. While this expands its balance sheet, it does so primarily to address liquidity tensions in the money markets without committing to balance sheet expansion or sustained yield suppression.
Traditional QE targeted long-term government bonds and mortgage-backed securities to aggressively lower long-term yields and inject trillions into the economy, directly increasing liquidity for speculative investment.
Steno Research founder Andreas Steno Larsen put it best at X: “Unfortunately, this is not Lambo QE. More like ‘my Uber is 7 minutes away’ QE.”
According to some observers, the latest implemented program is a pre-emptive strike against potential 2019-like instability in money markets.
“Instead of risking a 2019-style fight, the Fed is quietly buying a cushion now. It’s simply the Fed making sure the financial system has enough breathing room to get through the spring without anything breaking,” said pseudonymous observer EndGame Macro.
