Fed’s Rate Cut Decision Creates Uncertainty for Bitcoin

The Federal Reserve faces a tough decision this week with the decision to cut the interest rates. Market analysts suggest that the Fed’s possible cut in rates by 25 or 50 basis points will have a impact on assets like Bitcoin. This uncertainty has led to fluctuations in Bitcoin’s price, which recently dropped from $60,000 to $58,700.

Jim Reid from Deutsche Bank suggests that the size of this week’s rate cut could indicate further reductions throughout the year. A 25 basis point cut could lead to a total of 75 basis points in cuts for 2024, while a 50 basis point cut could signal up to 100 basis points.

Marc Chandler who is a strategist at Bannockburn Global Forex, noted that the market is currently balanced between expectations for a smaller or larger cut. This uncertainty has put a stop to Bitcoin’s bullish run. Chandler also mentioned that a larger cut might not favor risk assets. It could also imply deeper economic issues or discourage new investors  cryptocurrencies market.

Interestingly, the Fed funds futures market shows a 50% chance for both potential rate cuts. This split expectation show the unfamiliarity of the situation affecting investment strategies, particularly in riskier assets or volatile markets such as cryptocurrencies.

Analysts warn that a 50 basis point cut might be seen as a sign of panic, which could also harm the demand for riskier assets such as Bitcoin. However, discussions about the size of the rate cut have progressed last week. 

The crypto market remains on edge as the Fed moves towards the decision. Traders and investors seem to be interested in the Fed’s rate decision and subsequent economic outcomes closely. The outcome is expected to influence Bitcoin’s market trajectory in the coming weeks.The decision could either boost confidence in risk assets like Bitcoin or lead to further market conservatism among investors.

Arthur Hayes the former CEO of BitMEX, analyzed why recent Federal Reserve rate cuts haven’t raised Bitcoin prices as anticipated. Hayes suggests a major change in financial markets could be why Bitcoin hasn’t performed well, even with lower interest rates.