The tightening of the US financial environment has put pressure on altcoins to bottom out and wait for a rebound

Due to concerns about continued high inflation after Trump took office , the Federal Reserve is expected to cut interest rates twice in 2025. The hawkish Federal Open Market Committee ( FOMC ) meeting released a conservative rate cut signal, which directly triggered a decline in all risky assets , with meme coins and altcoins falling particularly significantly.

The characteristics of altcoins make them particularly vulnerable in an environment of tight funds . Many altcoins lack an ecosystem and have limited actual usage scenarios, and lack endogenous growth momentum ; the FDV is too high and the wealth effect is not significant; the arrival of the unlocking period for institutional holders further increases the selling pressure in the market.

Therefore, the rise of altcoins requires capital pull. Against the backdrop of a significant weakening of expectations for interest rate cuts, institutional funds were mainly concentrated in Bitcoin ( BTC ). The price of BTC fell slightly, while altcoins fell sharply.

Analysts at StarEx Exchange believe that overly optimistic market expectations are an important reason for the sharp drop . Although the direct cause is the hawkish stance of the Federal Reserve, the deeper reason for the market crash lies in the previous excessive bullish sentiment. Since Trump announced his candidacy, risky assets (especially Bitcoin) have experienced a round of sharp unilateral increases, making the market extremely vulnerable to any negative news.

The economic policy of the Trump team advocates reducing tax burdens and promoting fiscal stimulus. This policy orientation has triggered expectations for interest rate cuts and liquidity release in the capital market. However, the Federal Reserve significantly lowered its expectations for interest rate cuts in its latest meeting, which is obviously contrary to the market's optimism. The United States is currently facing a complex economic environment of " high debt, high tariffs, high exchange rates, and high interest rates . " The capital market has high hopes for Trump's ability to quickly resolve these problems after taking office, but the recent rejection of the appropriations and debt ceiling bills supported by the Trump team by the U.S. House of Representatives has further exacerbated market concerns.

Why is the Fed reluctant to cut interest rates quickly? Its core function is to maintain inflation at a reasonable level while protecting the global credit of the US dollar. The policy inclinations of the Trump team may lead to a resurgence of inflation, while raising the debt ceiling and fiscal expansion will have a negative impact on the credit of the US dollar. This contradiction has led to a policy conflict between the Fed and the government.

However, historical data shows that market forecasts often deviate from actual results. For example:

At the end of 2021, the market expected three interest rate hikes in 2022 , but there were ultimately seven hikes ; at the end of 2022 , the market expected one interest rate hike in 2023 , but there were ultimately four hikes; at the end of 2023 , the market expected six interest rate cuts in 2024 , but there were actually four .

Therefore, the prediction may not be correct. In the future, when an economic recession or financial crisis occurs, the Federal Reserve may be forced to adopt radical monetary policies, such as emergency interest rate cuts or restarting quantitative easing.

Analysts at the StarEx exchange believe that although altcoins are under pressure in the short term, their long-term performance may still usher in explosive growth due to the gradual improvement of the ecosystem and changes in the macroeconomic environment. If a black swan event such as a recession or financial crisis occurs in 2025, the Federal Reserve may have to urgently cut interest rates or restart quantitative easing. This will significantly improve the liquidity environment and provide momentum for the altcoin market to rise. Although many altcoins are currently weak in ecology, some projects are actively expanding their application scenarios. For example, areas such as decentralized finance ( DeFi ) and NFT markets may provide continued demand growth for altcoins.

It is the Christmas holiday, and the 2024 fiscal year is about to end, so the market trading activity has declined. In this environment, the market may experience a period of low volatility and bottoming out, and there may even be large-scale liquidation events. For investors, it is a more stable strategy to continue to wait and see or buy on dips in the short term.