Cryptocurrency and stock markets plunged after Federal Reserve Chairman Jerome Powell's remarks on Wednesday.

The Dow Jones Industrial Average fell 1,100 points, the S&P 500 fell nearly 3%, and the Nasdaq Composite fell more than 3.5%, while Bitcoin fell 5%, Ethereum and Solana fell 7%, and XRP fell 10%.

Fed changes 2025 stance to 'less restrictive'

The Fed cut rates by another 25 basis points as expected, but it was Powell's remarks about 2025 that sparked optimism in bond markets and disappointed other markets.

The Fed is likely to cut rates only twice in 2025 as inflation remains volatile.

US consumer inflation rose from 2.6% to 2.7%, prompting Powell to say the Fed “may be more cautious in considering further adjustments.”

It was Powell’s additional comments about a potential Bitcoin reserve, however, that really got the crypto space thinking. Powell said the US central bank has no authority to store or hold Bitcoin, adding that the Fed is “not looking for a change in the law.”

The statement came after an Axios reporter asked the chairman if he thought holding Bitcoin and creating a reserve was valuable to the United States.

“We’re not allowed to own Bitcoin. The Federal Reserve Act says what we can own, and we’re not looking for a change in the law. That’s something Congress would have to look at, but we’re not looking for a change in the law at the Fed.”

While Senator Cynthia Lummis introduced the SPR bill after Donald Trump’s announcement of a federal Bitcoin reserve, not everyone agrees it’s a good idea.

Bill Dudley, former president of the Federal Reserve Bank of New York, previously called it a bad idea in a Bloomberg op-ed .

Others believe the market has overreacted to the potential Bitcoin reserve. Grayscale head of research Zach Pandl told The Block that investors “may be over-focusing on the theoretical possibility of a Bitcoin SPR,” as evidenced by the price drop after Powell’s remarks.

Pandl added that Grayscale sees a need for Bitcoin to be adopted by other markets first.

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