Bitcoin dips sharply amid Federal Reserve decisions

Bitcoin, which has been soaring to record highs in recent weeks, experienced a significant decline, losing approximately $8,000 in value. This drop follows key decisions by the U.S. Federal Reserve, led by Chair Jerome Powell, that unsettled investors.

Interest rate cuts spark concerns

On December 18, the Federal Reserve announced a reduction in its benchmark interest rates, with plans for a gradual continuation in the coming year. While lower rates typically drive increased demand for cryptocurrencies from investors seeking higher returns, the pace of the adjustments left traders dissatisfied.

David Lawant, head of research at cryptocurrency brokerage FalconX, struck a reassuring tone in comments to Bloomberg:

“While macroeconomic factors traditionally influence cryptocurrency prices, sector-specific dynamics are expected to take precedence in the coming weeks and months, especially as the market anticipates shifts in policy under the new administration.”

Federal Reserve opposes strategic Bitcoin reserve

Amid this backdrop, President-elect Donald Trump recently floated the idea of creating a strategic Bitcoin reserve for the United States. The proposed reserve would involve acquiring approximately 200,000 Bitcoins, valued at $21 billion, largely sourced from assets seized in criminal cases.

However, Jerome Powell dismissed the notion, stating, “We do not have the authority to hold Bitcoins.” When asked about potential legislative changes to enable the Federal Reserve to manage such reserves, Powell added, “That’s a matter for Congress to consider, but we are not pursuing a change in the law at the Fed.”

Analysts from Barclays, cited by Reuters, suggested that funding a strategic Bitcoin reserve would likely require Congressional approval and the issuance of new Treasury bonds. They warned that such a proposal would likely face significant resistance within the Federal Reserve.

Central bank's longstanding skepticism

The Federal Reserve has consistently expressed concerns about cryptocurrencies, citing their inherent risks to consumer safety and the broader financial system. This cautious stance aligns with its hesitance to integrate digital assets into its operational framework, prioritizing stability and security over speculative ventures.

The developments highlight the growing tension between traditional financial institutions and the rapidly evolving cryptocurrency sector, raising questions about the future of digital assets in a regulated economy.