FOMC me here and FOMC me there
The broad market read a lot into the FOMC conference, which offered an updated dot plot trajectory of two cuts rather than four cuts in 2025. Crypto market participants read even more into it, following Jerome Powell’s statements that the Federal Reserve is not allowed to hold bitcoin. This statement received far more coverage than it deserved, as a Strategic Reserve plan is not the Federal Reserve’s to make. The decision is in Trump and the U.S. Congress’ hands. Trump may launch a reserve (or stockpile of existent holdings) via an executive order, potentially allowing Trump to leverage the Exchange Stabilization Fund to buy BTC. A grander reserve plan requires congressional approval, and if so happens, Jerome Powell and the Federal Reserve will have to abide by the new act.De-risked into the new year
The resolute selling in late December was likely initiated by the FOMC and accelerated due to factors such as tax planning, with traders setting aside funds to pay off the 2024 tax bill. The correction cleansed the derivatives books of high leverage and spiraled other derivatives traders into de-risking, pushing funding rates into neutral to below neutral terrain. This has made the overall market environment far healthier. We’re now in a new tax year, with Trump’s inauguration 13 days away, and I am staying fully exposed for now, as the setup favors strength in the two coming weeks.Things take time – Why reducing some exposure in January makes sense
Trump and his administration are undoubtedly a positive development for the crypto market. We can expect a more fruitful regulatory environment for the U.S. crypto industry and tier-1 banks to launch crypto custody solutions following a SAB-121 overturn. Further, a stockpile of current holdings or a strategic reserve is clearly in the books and will be a topic attracting vast attention throughout the year. The silver lining behind all these developments is that they are processes that take time, and we’re currently in the dark without meaningful information on when these processes will be initiated.Frontrunning and selling news
Expectations for Trump’s presidency and its impact on the crypto market are enormous. Still, we might once again be in a state of traders frontrunning with overzealous expectations of the pace of change.Bitcoin’s history is riddled with speculative peaks tied to major events: CME futures in 2017, Coinbase’s listing in 2021, and El Salvador’s adoption. Even the launch of BTC ETFs in 2024 saw a three-week selling spree before extraordinary supply absorption throttled markets higher.All these news events have been monumental in pushing BTC to its current highs. ETFs would not have happened without the CME futures launch, and CME is now the dominant derivatives market in Bitcoin and its key source for price discovery. Coinbase went public, showcasing the maturing crypto industry, allowing asset managers to get exposure to the crypto industry, and being a testament to sound business models arising from crypto. El Salvador’s adoption was a pilot for other governments to follow, highlighting that adopting BTC treasuries is not as far-fetched as once thought.Frontrunning the inauguration and leading the inauguration to become a sell-the-news event would be an archetypal crypto reaction. We have already seen a nice 48% run since the election and may see further enthusiasm in the 13 days until the inauguration, offering a nice opportunity to take some chips off the table.I’ll look to the inauguration to reduce exposure, eyeing the event as a solid event to stifle momentum for quite some time. I’ll then look for entries at lower levels, with $75,000 striking out as a likely area for the price to return sometime in 2025, both to retest the former ATH and to fill the post-election CME gap. If the market proves me wrong in the days following the election, I’ll happily buy back higher.
