Bitcoin has been experiencing a decline in recent days following comments by Jerome Powell, the head of the Federal Reserve (Fed), who discussed the potential creation of a “Bitcoin reserve” in the United States. According to Powell, under current conditions, the regulator does not see the possibility of organizing cryptocurrency storage and does not plan to pursue this initiative, as it would require changes to existing legislation.
The idea of creating a Bitcoin reserve was proposed by Donald Trump, who won the 2024 presidential election. He suggested using this model to address the issue of the U.S. national debt. According to his plan, the country would gradually buy Bitcoin until it holds 5% of the total supply of the cryptocurrency. Such a project could become a powerful growth driver for Bitcoin, supporting its positive momentum through active purchases. However, Powell’s comments, suggesting that this initiative is unlikely to be implemented in the near future, sent a bearish signal to the market.
These statements came on the heels of a Federal Reserve meeting where a decision was made to lower the key interest rate for the third consecutive time. This time, the rate was reduced by 25 basis points to the level of 4.25–4.5% per year. As of the time of writing, the majority of market participants (91%) believe that the Fed will leave the rate unchanged at its next meeting in January 2025. An important factor in this prediction was Powell’s hints that the pace of rate cuts in the coming year will be less aggressive than previously anticipated.
For the cryptocurrency market, a lower interest rate is typically a positive sign, as it makes high-risk assets like cryptocurrencies more attractive. However, Powell’s doubts about an aggressive pace of rate cuts in the future have negatively affected investor sentiment.
Future predictions
Some members of the crypto community believe that Bitcoin’s price drop is just a short-term correction and that the cryptocurrency will begin to rise again in the future. For instance, popular crypto blogger Nebraskangooner is confident that this is simply a temporary dip before a new rally, which will lead to new all-time highs. Crypto investor Rager added that, from a technical analysis standpoint, the current correction looks healthy, which gives grounds for expecting a resumption of growth.
Traders and investors often use the news for cryptocurrency trading. But until now, Bitcoin has been growing regardless of whether the Fed recognized it as a reserve asset or not. Of course, if Trump does not fulfill his promise, Bitcoin might enter a correction, but that will not halt its further growth and demand for the first cryptocurrency. A 5% or greater correction is nothing compared to previous market cycles during bull runs when Bitcoin would fall 20%, 30%, or even more percent before hitting new highs. Those who truly believe in Bitcoin will continue to do so at any price and understand that, over a horizon of 5-7-10 years, this asset will yield good profits.
