Following a two-day meeting that was finalized on Wednesday, the United States Federal Reserve announced a 25-basis-point (bps) interest rate cut. The federal funds target rate is now at 3.50-3.75%.
This is the Federal Reserve's third interest rate cut in 2025, and the sixth since late 2024.
However, despite investors having long anticipated this rate cut, the crypto market remained sluggish. Just hours after the cut was announced, Bitcoin and Ethereum lost the rebound they had built over the past three days. This triggered a massive sell-off that caught traders off guard.
The rate cut, which was supposed to act as a catalyst for a bullish market, instead became a trigger for a decline in value.
Normally, low interest rates mean that people can borrow funds more easily and cheaply. Liquidity increases, and interest in speculative assets rises.
In past cycles, Bitcoin has always reacted quickly and aggressively to interest rate cuts by the Federal Reserve.
However, that pattern was broken this year. Every interest rate cut in 2025 ended with a mild or even negative response from digital assets. That was also the case after Wednesday’s interest rate cut.
Before the Federal Reserve's announcement, Bitcoin rose above $94,000, but then sharply reversed course and fell below $90,000 a few hours later.
Meanwhile, Ethereum dropped by over 4% and fell below $3,200. Other altcoins also declined by 2-5%.
On that day, more than $1 billion in crypto was liquidated. This decline wiped out most of early December’s rebound.
What caused the decline in value, even though the interest rate cut should have been good news for investors? The problem was not the cut itself, but the situation surrounding the market.
In his press conference, Federal Reserve Chairman Jerome Powell reminded investors to be cautious. There are still risks of inflation and signs of a one-time interest rate cut in 2026.
The market has already factored in the possibility of a 25 bps interest rate cut. However, they were expecting more than that. Investors hoped for confidence and security, but what they got instead was a call for restraint.
Traders are rushing to exit risky positions. The result is a domino effect of liquidations that leads to a sluggish market.
The interest rate cut not only affects the value of Bitcoin as the largest cryptocurrency, but also housands of other altcoins.
What is an altcoin? Get the full explanation in the article What Are Altcoins? Definition, Types, and Investment Potential.
