Fed Chair Powell’s Rate Cut and Bitcoin Ownership Remarks Trigger Market Commotion

Crypto and stock markets have crashed following statements made by the chair of the US Federal Reserve, Jerome Powell, on Wednesday. 

The Dow Jones Industrial Average dropped by 1,100 points, the S&P 500 was down by close to 3% and the Nasdaq composite tumbled by more than 3.5%, while Bitcoin dropped 5%, Ethereum and Solana fell up to 7%, and XRP dropped by 10%.

In fact, most cryptos are in the red, with memecoins such as Dogwifhat (-16%), Pepe (-14%) and Bonk (-13%) taking the biggest hits. The only tokens up at present are Pudgy Penguins (+23%) and the Bitget Token (+7%).

Fed Changes 2025 Stance to “Less Restrictive”

As expected, the Fed has cut interest rates by another 25 basis points, but it was Powell’s statements about 2025 that had Bond markets cheer and left other markets disappointed.  

It’s likely the Fed will now only make two rate cuts in 2025, as inflation remains sticky. 

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According to Market Insider, Brandywine Global portfolio manager Jack McIntyre said it was “no wonder the Fed reduced the number of expected rate cuts in 2025”.

Consumer inflation has increased in the US, going from 2.6% to 2.7%, which led Powell to say the Fed “can therefore be more cautious as we consider further adjustments”.

We have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive.

Jerome Powell, chair of the US Federal Reserve

Not Allowed to Own Bitcoin, Says Powell

However, it was Powell’s additional remarks on a potential Bitcoin reserve that really had heads spinning in the crypto-sphere. Powell said that the US central bank has no authorisation to store or hold Bitcoin, adding that the Fed is “not looking for a law change”.

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The statement came after a reporter from Axios asked the Chair whether he believes holding Bitcoin and building a reserve was of value to the United States.

We’re not allowed to own bitcoin. The Federal Reserve Act says what we can own and we’re not looking for a law change. That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed.

Jerome Powell, chair of the US Federal Reserve

While Senator Cynthia Lummis had introduced a strategic reserve bill following Donald Trump’s announcement of federal Bitcoin holdings, not everyone agrees that it’s a good idea.

Expert Sees Bitcoin Reserve in Asia, Middle East First

Bill Dudley, the former president of the Federal Reserve Bank of New York, had called it a bad idea in a Bloomberg opinion piece earlier.

What’s in it, though, for the government or for people who don’t hold Bitcoin? Nothing good. There’s no exit strategy, so the purpose must be to push prices higher, not create value for the government, which would be stuck holding volatile tokens that produce no income.

Bill Dudley, former president of the Federal Reserve Bank of New York

Others think the market has overreacted to a potential Bitcoin reserve. Head of research at Grayscale, Zach Pandl, told The Block that investors “may be placing too much emphasis on the theoretical possibility of a strategic Bitcoin reserve”, as evidenced in the price drop following Powell’s remarks.

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Pandl added that Grayscale sees Bitcoin adoption in other markets first:

Grayscale Research expects more nation states to adopt Bitcoin, but the next step will more likely be sovereign wealth funds in Asia or the Middle East, which already manage highly diversified pools of assets.

Zach Pandl, Grayscale