From theblock by Brian McGleenon

Bitcoin BTC -5.94%'s price ticked higher immediately after the U.S. Federal Reserve cut interest rates by 25 basis points on Wednesday.

The Federal Open Market Committee (FOMC) did what many economists and traders predicted: It cut the benchmark federal funds rate to a lower range of between 4.25% and 4.50%. This follows a 25 basis-point cut in November, and 50 basis point cut in September.

"In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 percent," the central bank said in a statement. "Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated."

Regarding the possibility of further rate cuts, the central bank said, "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

"...the Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments," the FOMC statement added.

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. ET.

Derivatives indicators show market optimism

Market indicators suggest growing optimism for bitcoin as CME bitcoin futures open interest surges toward all-time highs, and basis premiums for bitcoin and ether hit 16.4% during the recent breakout, according to a K33 Research report. Analysts note that contango—where futures prices exceed spot prices—has widened to levels unseen since November 2023. The December CME bitcoin futures contract is particularly noteworthy, with open interest equivalent to 113,480 BTC, highlighting strong institutional participation.

QCP Capital analysts echoed this sentiment, observing limited bearish signals for bitcoin's spot price. However, they noted a cautious tone in the options market, where put options continue to dominate over calls, suggesting traders may still be prioritizing hedging risk rather than chasing the rally aggressively.

"The options market offers a note of caution, with a continued skew toward puts over calls even as spot continue to make new highs—perhaps signaling a preference for hedging rather than aggressively chasing the rally," QCP Capital analysts said.

QCP Capital analysts cited that a significant regulatory tailwind has also emerged. The U.S. Financial Accounting Standards Board (FASB) recently adopted fair value accounting for bitcoin and other digital assets. This shift allows companies to recognize fair value gains directly in their net income, making it more attractive for corporate treasuries to hold bitcoin.

"With a supportive regulatory environment driving the recent rally, this could spark a cross-asset feedback loop, where firms holding bitcoin in their treasuries find it easier to raise funds—potentially fueling institutional demand for bitcoin in a non-linear fashion," QCP Capital analysts said.

Grayscale Head of Research Zach Pandl believes Bitcoin will likely remain resilient following the Fed meeting outcome. "Although officials now see fewer rate cuts next year, and one FOMC member dissented over today's cut, the central bank is still lowering rates alongside a strong economy," Pandl told The Block. "Given all the other positive for crypto markets at the moment we would be surprised if today's meeting triggered any kind of meaningful pullback." 

Equities trade higher after rate cut decision

Major stock indices also spiked higher after the Fed cut interest rates at December's FOMC meeting. During mid-day trade in the U.S. on Wednesday, the S&P 500 fell 1.7% and the Nasdaq Composite rose 2.23%, and the Dow dropped 1.4%.The CBOE Volatility Index (VIX), which measures the expected volatility of the S&P 500 index over the next 30 days, increased 16% to 18.41 points. Gold decreased 1.52% over the past 24 hours to $$2,606.43 per ounce.