The cryptocurrency market faced a sharp reversal Wednesday afternoon as Federal Reserve Chair Jerome Powell delivered what amounted to an unexpected policy pivot, signaling that the central bank’s rate-cutting cycle may have effectively ended with October’s 25-basis-point reduction. Bitcoin, which had held steady near $116,000 ahead of the announcement, plummeted to $109,000 in a dramatic sell-off that illuminated the fragile psychology underlying risk assets in an environment of persistent economic uncertainty.
The immediate trigger was Powell’s carefully chosen remarks during his post-meeting press conference. While the Fed did proceed with its second rate cut of 2025, bringing the benchmark federal funds rate to a target range of 3.75-4%, Powell made clear that policymakers were in no rush to cut further. “There’s a growing chorus now of feeling like maybe this is where we should at least wait a cycle,” he told reporters, a diplomatic formulation that nonetheless conveyed caution about the trajectory ahead. When pressed on whether the market should expect additional cuts in December, Powell stopped short of committing. “We have not made a decision about December,” he emphasized, adding that Fed officials held “strongly differing views” on the matter.
The market’s interpretation was swift and unforgiving. Futures pricing for a December rate cut collapsed from roughly 90% odds earlier in the day to just 71%, according to CME data and prediction markets. The two-year Treasury yield spiked 9 basis points as bond traders recalibrated their models. And Bitcoin, which has historically served as a barometer for risk appetite and monetary accommodation, followed the script with brutal precision, falling more than $7,000 in a matter of minutes as sellers rushed for the exits.
What made Powell’s stance particularly jarring was the underlying contradiction embedded in the Fed’s broader policy message. The central bank did signal movement on one crucial front: quantitative tightening, the multi-year campaign of shrinking the Fed’s bloated balance sheet, would likely end by December. Ending QT would theoretically stop the drain on financial system liquidity that has been underway since 2022, when the Fed aggressively began allowing its holdings of Treasuries and mortgage-backed securities to run off without reinvestment. That $1 trillion reduction in Fed holdings has been a persistent headwind for risk assets. The prospect of reversing course should have been bullish for Bitcoin and equities alike.
Yet Powell’s hawkish rhetoric on rate cuts overwhelmed the dovish monetary accommodation message. The Federal Reserve chair’s comments reflected the institution’s struggle to navigate a genuinely complicated economic backdrop: inflation that, while cooling, remains sticky and well above the Fed’s 2% target; a labor market showing signs of stress with unemployment creeping higher; and a geopolitical and trade landscape roiled by the Trump administration’s tariff threats, which Powell explicitly referenced as a source of upside inflation risk.
“Inflation excluding the impact of tariffs is not so far from the central bank’s 2% target,” Powell noted, an acknowledgment that the current administration’s trade policy posed a threat to price stability that the Fed could not easily dismiss or accommodate through monetary easing. This positioning reflected a deeper anxiety within the central bank: in a world of potential tariff-driven inflation, further rate cuts might actually be counterproductive, even as economic growth threatened to slow under the weight of higher business costs and consumer uncertainty.
The timing of Powell’s remarks was made all the more consequential by an unusual constraint on policymakers: the government shutdown that had unfolded in recent weeks had crippled the federal statistical apparatus. The Bureau of Labor Statistics was unable to release its closely watched monthly employment report, and other critical economic indicators were delayed or withheld. The Fed was, in effect, making major Monetary Policy decisions while flying partially blind, forced to rely on private-sector data from sources like ADP and private analytics firms rather than on the granular, authoritative government statistics that typically guide monetary policy. This information vacuum appeared to have emboldened the cautious faction within the FOMC, the committee that sets policy.
Bitcoin’s sharper-than-usual reaction to Powell’s comments suggested that the cryptocurrency market had been bracing for a different outcome. In the days leading up to the announcement, Bitcoin had been testing elevated levels above $115,000, buoyed by expectations that the Fed would deliver another quarter-point cut and signal an accommodative posture toward further easing. The September rate cut had barely moved the needle, Bitcoin’s reaction was muted, suggesting the market had fully priced in that move. But Wednesday’s reversal upended those assumptions.
The sell-off was not uniformly dramatic across the crypto complex, but it was broad. Ethereum, the second-largest cryptocurrency by market capitalization, fell roughly 2% to trade near $3,900. The aggregate cryptocurrency market cap contracted by 1.8%. These moves, while notable, were actually restrained compared to the liquidation cascade that had gripped crypto markets just weeks earlier on October 10, when Trump’s threats of 100% tariffs on Chinese goods had triggered a $19 billion liquidation event, then the largest ever recorded. Bitcoin had crashed nearly 10% that day, while Ethereum plunged 14%. The current moves suggested somewhat chastened risk appetite, but not outright panic.
Still, the technical significance of Bitcoin’s dip to $109,000 was not lost on trading desks and retail speculators. The $109,000 level has functioned as a critical support zone a price point below which technical analysts and algorithmic traders view as a line in the sand. A breach of this level, particularly on heavy volume, could trigger cascading stop-losses among leveraged traders. Bitcoin recovered somewhat in the hours after Powell’s remarks, stabilizing near $111,000-$111,200 by late Wednesday, but the psychological damage had been done. The cryptocurrency had moved sharply lower while traditional risk assets, the S&P 500, the Nasdaq, showed relative resilience, with the broad market finishing essentially flat on the day.
This divergence highlights a crucial tension in how cryptocurrencies respond to monetary policy shifts compared to traditional equities. Stocks are ultimately valued on the basis of corporate earnings power and growth expectations; falling interest rates are supportive primarily because they lower discount rates and reduce borrowing costs for companies. Bitcoin, by contrast, lacks cash flows or earnings. Its value proposition is more purely monetary and psychological: it is a store of value in a world of fiat currency creation and monetary policy experimentation. In that context, Powell’s comments that the Fed is likely to pause rate cuts are genuinely negative for Bitcoin, suggesting not just that easing is done, but that the reflationary impulse that has sustained asset prices for the past year or so is starting to shift into reverse.
Some market observers attempted to frame the situation more optimistically. Alex Blume, CEO of the crypto asset manager Two Prime, noted that “easing monetary conditions are supportive of upward price momentum for BTC” as long as macroeconomic risks don’t intensify. Thomas Perfumo, a global economist at Kraken, echoed this view while cautioning that the October 10 liquidation cascade had “reduced short-term risk tolerance” among traders, making them more skittish about leveraged positions and volatile moves.
But these reassurances glossed over a harder reality: the Fed’s pivot, however modest in tone, represented a genuine shift in stance. The central bank is no longer offering the implicit guidance that rate cuts are ongoing. Instead, Powell’s message was that the Fed is content to hold rates steady and observe how the economy evolves. If inflation ticks higher due to tariffs or other factors, or if the labor market stabilizes, the Fed’s next move might not be to cut but rather to pause indefinitely, or even, in a severe recession scenario, to hold steady before eventually raising rates again.
For Bitcoin and other risk assets that have thrived in an environment of monetary accommodation, that prospect is disquieting. The cryptocurrency’s rally from the lows of 2023 to above $100,000 has been substantially powered by expectations of monetary easing, by the hope that central banks globally would shift into a rate-cutting cycle. Powell’s hawkish turn suggests that hope was premature.
The broader context for Fed policy, government data blackouts, tariff uncertainty, mixed labor market signals, suggests that the central bank’s cautious stance is likely to persist. Unless inflation falls sharply or a genuine recession emerges, the Fed is unlikely to resume cutting in any aggressive manner. That constraint on monetary stimulus may prove to be a persistent headwind for Bitcoin in the months ahead, even as the end of quantitative tightening offers a modest counterbalance. For now, the message is clear: the era of easy money is ending, and Bitcoin’s traders are starting to price that reality in.
