The Federal Reserve slashed interest rates by 25 basis points to 3.50%-3.75% on December 11, 2025 the third consecutive cut this year yet Bitcoin dropped 4% instead of rallying, leaving crypto traders divided on whether BTC can hold $94,000 or faces another painful retracement after the Fed Cuts Rates.
The Cut That Shocked Nobody (But Markets Anyway)
Understanding Market Reactions to the Fed Cuts Rates
The rate reduction was the most telegraphed Fed decision in months. Markets priced in 90% odds of a 25-basis-point cut before the announcement, with major banks like Morgan Stanley, J.P. Morgan, and Bank of America all forecasting the move. The federal funds rate now sits at its lowest level since 2022 as inflation shows signs of moderating and the labor market cools.
But here’s the twist: The FOMC vote split 9-3, with two members opposing any cut and one pushing for a more aggressive 50-basis-point reduction the first such divided vote since September 2019. This division signals deep uncertainty about economic conditions just as crypto markets desperately seek clarity.
Powell’s Hawkish Bombshell: “Inflation Somehow Elevated”
Bitcoin briefly spiked above $94,000 immediately after the rate cut announcement, but Chair Jerome Powell’s press conference torpedoed the rally. Powell described inflation as “somehow elevated” and emphasized the Fed’s data-dependent approach, effectively cooling expectations for aggressive 2026 easing.
The hawkish tone matters more than the rate cut itself. Powell stressed that monetary policy “recalibration is now concluded,” signaling future cuts face stricter criteria despite announcing $40 billion monthly Treasury purchases starting December 12. While Powell insisted this isn’t quantitative easing, markets know added liquidity often flows into high-beta assets like crypto—creating a confusing push-pull dynamic
The Impact of revised Rates on Market Sentiment
Why Bitcoin Dropped on “Good News”
Cryptocurrency markets typically thrive when rates fall lower interest rates reduce the opportunity cost of holding non-yielding assets like Bitcoin. So why did BTC tumble instead ?
Classic “buy the rumor, sell the news” dynamics. Traders who positioned ahead of the expected cut took profits immediately after confirmation. Thin liquidity and cautious sentiment limited gains as Bitcoin swung wildly between $89,536 and $94,381 in a single trading session.
The $100K Question: Breakout or Breakdown?
Technical analysts identify two critical levels:
Support: $90,263 represents production costs and a psychological floor limiting immediate downside. Bitcoin exchange reserves hit their lowest level since January 2023, indicating reduced selling pressure as long-term holders refuse to capitulate.
Resistance: Breaking decisively above $94,000 could trigger a rally to $100,000, especially if stablecoin balances on exchanges (currently rising) convert to buying power. Q4 historically delivers average returns of 85.42% for Bitcoin since 2013.
The bearish case: Sustained hawkish Fed guidance could trigger retracement to $88,000-$90,000 as leveraged positions unwind and recent buyers who entered at $108,000-$116,000 face mounting losses.
What Happens Next?
Markets now focus on the Fed’s 2026 rate path. Morgan Stanley forecasts two additional 25-basis-point cuts in January and April, while Powell’s insistence that cuts will be “assessed meeting-by-meeting” keeps volatility elevated.
For Bitcoin, institutional adoption and mainstream integration matter more than short-term rate decisions. But in the immediate term, traders face a binary choice: bet on the historical pattern that rate cuts eventually boost crypto, or respect Powell’s hawkish pivot and prepare for turbulence ahead.
