This morning, the cryptocurrency market showed signs of recovery after suffering considerable losses earlier this week, which followed the Federal Reserve’s last meeting of the year on Wednesday. The meeting resulted in a 25 basis point interest rate cut, accompanied by hawkish comments from Fed Chair Jerome Powell that caught many investors off guard.

Bitcoin (CRYPTO: BTC), which often leads the market, experienced a drop of nearly 10% yesterday but has since stabilized, showing less than a 1% decline from late yesterday afternoon. As of 11:33 a.m. ET on Friday, it was trading around $97,300. On the other hand, XRP (CRYPTO: XRP) managed to recover most of its losses after falling as much as 9% on Thursday. Meanwhile, Shiba Inu (CRYPTO: SHIB) dropped around 16% yesterday but was down only about 4% recently.

A surprise from the Fed? Or a market complacent?

The Fed’s meeting on Wednesday wrapped up with a 25 basis point rate cut, which traders largely anticipated. During the press conference, Powell noted that the Fed would approach any further cuts with caution. Currently, Fed officials project only two additional rate cuts in 2025, reduced from a previous forecast of four in September.

While some may perceive this as the Fed delivering a disappointing message ahead of the holidays, the market’s severe sell-off was unexpected. Many analysts consider the market to be overvalued. However, those closely following Powell’s remarks and the Fed’s updated projections should not have been caught off guard.

Inflation levels are still above the Fed’s desired 2% target, and the job market remains robust. Additionally, Fed officials appear to be taking a wait-and-see approach regarding the policies of President-elect Donald Trump. There are concerns that Trump’s proposed tax cuts and tariffs might reignite inflation.

Strangely, just a week ago, CME Group‘s FedWatch tool indicated that about 33% of traders were expecting the federal funds rate to drop to between 3.75% and 4%, while 27% anticipated it would end 2025 at 4% to 4.25%.

Now, around 34.5% of traders predict the federal funds rate will finish 2025 in the 4% to 4.25% range. While expectations have shifted, the changes are not dramatic.

The market had become somewhat inflated, leading me to believe that investors were looking for a reason to sell off after two exceptionally high-performing years. The fluctuations in interest rates have substantially impacted the cryptocurrency market, which generally responds favorably when more rate cuts are anticipated.

Fortunately, the market received a boost this morning after the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Index, increased by just 0.3% in November, slightly below predictions. The PCE, which eliminates fluctuating food and energy prices, is up 2.4% year-over-year, also marginally lower than expectations.

There’s limited token-specific news available, but recently, the Securities and Exchange Commission approved a proposal from crypto asset manager Hashdex along with Franklin Templeton to launch a spot crypto index exchange-traded fund that would include Bitcoin and Ethereum.

Anticipate some fluctuations

This week, macroeconomic news seems to be steering the market as investors assess potential interest rate and inflation trends for 2025. I anticipate that the market will see fluctuations as debates continue and new data emerges. The situation is still fluid.

Bitcoin, XRP, and Shiba Inu are all likely to benefit if interest rates decrease further or if the market anticipates more significant rate cuts (barring a recession). Shiba Inu and XRP are expected to be more volatile than Bitcoin, which is perceived as a more stable investment since many regard it as a safeguard against inflation.

Bram Berkowitz holds investments in bitcoin, ethereum, and XRP. The Motley Fool invests in and recommends bitcoin, ethereum, and XRP. The Motley Fool also recommends CME Group. The Motley Fool adheres to a disclosure policy.

The Motley Fool serves as a content partner for YSL News, offering financial insights, analysis, and commentary to guide individuals in managing their finances. Its content is produced independently of YSL News.

Is now a good time to invest $1,000 in XRP?

Offer from the Motley Fool: Before purchasing stock in XRP, consider this:

The Motley Fool Stock Advisor analyst team has identified what they consider the 10 best stocks for investors right now and XRP isn’t included in that list. The ten selected stocks have the potential for substantial returns in the coming years.

Take, for instance, when Nvidia was featured on this list on April 15, 2005 if you had invested $1,000 at that time based on our recommendation, you would now have $800,876!*

Stock Advisor offers investors a straightforward strategy for success, with advice on portfolio development, regular analyst updates, and two new stock recommendations each month. Since 2002, the Stock Advisor service has yielded more than quadruple the return of the S&P 500.