Cryptocurrencies Bitcoin, XRP and Shiba Inu bounce back after Fed’s Hawkish Pivot

Cryptocurrencies rose this morning after suffering heavy losses this week following the Federal Reserve’s last meeting of the year on Wednesday. The meeting included a 25 basis point interest rate cut and more hawkish rhetoric from Fed Chairman Jerome Powell that appeared to catch investors off guard.

Bitcoin (BTC 5.75%)a bell for the sector, had fallen as much as 10% yesterday, but was only down less than 1% from late yesterday afternoon. It traded around $97,300 as of 11:33 a.m. ET Friday. XRP (XRP 6.39%) also recovered most of its losses from Thursday after being down as much as 9%. Shiba Inu (SHIB 19.16%) was down as much as 16% yesterday but was only down about 4% recently.

A lump of coal from the Fed? Or a complacent market?

On Wednesday, the Fed wrapped up its last meeting of the year and cut interest rates by 25 basis points, which almost all traders expected. During his press conference, Powell said, “We will be cautious about further cuts.” Fed officials now expect to cut rates just twice in 2025, down from a projection of four in September.

Some may have interpreted this as Powell and the Fed giving the market a lump of coal for Christmas, but I was surprised to see the market sell off as hard as it did. The market definitely looks overvalued. However, Powell’s comments and the Fed’s new projections should not have surprised those paying attention.

Inflation remains above the Fed’s preferred target of 2% and the labor market remains strong. And Fed officials appear to be taking a wait-and-see approach to President-elect Donald Trump’s policies. Some worry that Trump’s proposed tax cuts and tariffs could fuel inflation.

Even more bizarre is that only a week ago, CME Group‘s FedWatch tool showed that about 33% of traders bet on the federal funds rate being cut to a range of 3.75% to 4%, while 27% of traders expected the rate to end 2025 at 4% to 4.25%.

Now, about 34.5% of traders expect the federal funds rate to end 2025 within a range of 4% to 4.25%. The probability has changed, but not very much.

The market had become frothy, so I guess investors didn’t need much reason to sell after an incredible two years of returns. The course of interest rates has significantly affected the crypto sector – the sector seems to benefit from several expected interest rate cuts.

Fortunately, the market got some relief this morning after the Fed’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) index, rose 0.3% in November, slightly below expectations. PCE, which strips out more volatile food and energy prices, rose 2.4% year over year, also slightly below expectations.

I didn’t see a ton of token-specific news, although the Securities and Exchange Commission recently approved a proposal by crypto-asset manager Hashdex and Franklin Templeton to form a spot crypto-index exchange-traded fund combining Bitcoin and Ethereum.

Expect some volatility

Macro news looks set to drive the market this week as investors try to figure out the course for interest rates and inflation in 2025. I think the market will experience volatility as the argument goes back and forth and new data emerges . A clear picture has yet to form.

Bitcoin, XRP and Shiba Inu should all benefit if interest rates move lower or if the market starts to believe that interest rates will fall more than expected (unless there is a recession). Shiba Inu and XRP will be more volatile than Bitcoin, which is the more stable play, because many see the token as a hedge against inflation.