Analysts Warn Bitcoin May Decline 15-20% with Anticipated Fed Rate Cuts
Analysts at Bitfinex have presented a bearish outlook, indicating that Bitcoin (BTC/USD) could experience a decline of 15-20%, potentially reaching a price floor of $40,000, should the Federal Reserve proceed with an anticipated interest rate cut in their forthcoming Federal Open Market Committee (FOMC) meeting.
This prediction notably contrasts with the prevailing sentiment in the broader market. The volatility of September is historically significant for Bitcoin, characterized by an average return of 4.78% alongside a typical peak-to-trough decline nearing 24.6%. Such fluctuations are commonly attributed to the resumption of trading activity as fund managers return from summer breaks.
Furthermore, the analysts highlight a concerning trend of increased correlation between Bitcoin and traditional financial markets, specifically U.S. equities. As global macroeconomic factors increasingly influence cryptocurrency movements, the analysts underscored that Bitcoin’s recent decline of over 4% in a 24-hour period closely followed significant downturns in the stock market—the most severe since August 5.
Data from The Block illustrates this growing connection, revealing that Bitcoin’s 30-day correlation with major index funds, including the Nasdaq Composite and the S&P 500, shifted from a negative correlation early in August to 0.41 and 0.25, respectively, by month’s end.
The implications of this analysis are substantial for investors, especially in light of remarks by Federal Reserve Chair Jerome Powell during the Jackson Hole Symposium, where he indicated a likelihood of forthcoming interest rate cuts. The CME FedWatch tool presently estimates a 59% probability of a 25 basis point cut, with a 41% chance of a more pronounced 50 basis point reduction. Typically, a reduction in interest rates enhances the appeal of riskier assets, such as cryptocurrencies, as they become more accessible through lower borrowing costs.
As of the most recent data, Bitcoin is trading at $56,337.10, reflecting a 4.40% decrease within the last day. These developments underscore the intricate relationship between macroeconomic policy and cryptocurrency market dynamics.
In summary, the outlook for Bitcoin amidst potential Fed rate cuts remains uncertain, with analysts calling attention to the cryptocurrency’s increased link to traditional asset markets and highlighting the historical volatility characteristic of September. Investors are advised to consider these factors as they navigate the evolving landscape of cryptocurrencies amid changing economic conditions.
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