Analysts Warn of Potential Decline in Bitcoin Prices Amid Expected Fed Rate Cut
Recent analyses from 10x Research indicate that the potential implementation of a 50 basis points (bps) interest rate cut by the United States Federal Reserve (Fed) in the coming month may present significant challenges for Bitcoin (BTC) prices. This warning comes as the Fed transitions from a phase of increasing interest rates, initiated in March 2022 in response to surging inflation spurred by COVID-19 disruptions, towards a strategy of rate reductions aimed at invigorating the economy.
The decision to reduce interest rates may send shockwaves through risk-on assets, particularly Bitcoin. The Bureau of Labor Statistics reported on September 6, 2024, that despite a slight decrease in unemployment, job growth fell short of expectations. This disparity creates a conducive environment for the Fed to lower rates, as it seeks to prevent excessive interest costs from harming corporate operations.
According to 10x Research, a 50 bps reduction scheduled for September 18, 2024, could inadvertently signal a lack of confidence in the economy, suggesting that the Fed perceives itself as having insufficient time to address the impending economic downturn. Such a perception could drive investors to shy away from high-risk assets, including equities and cryptocurrencies.
It is essential to clarify that one basis point is defined as one-hundredth of a percentage point, with central banks fashioning interest adjustments typically in increments of 25 bps or multiples thereof, adjusted for urgency. The Fed has previously executed larger rate hikes, including increments of 50 bps and 75 bps to manage inflationary pressures in 2022.
In a recent correspondence with clients, Markus Thielen, the founder of 10x Research, noted that while a reduction of 50 bps may imply heightened concerns within the markets, the Fed’s paramount focus remains on mitigating economic risks, rather than directly managing market sentiment. Thielen further stated that the likelihood of such a rate cut occurring is only 29%, a figure that diverges sharply from the prevailing notions within the market. There is an increasing sentiment that the Fed has lagged in its response to emerging signs of labor market vulnerabilities, particularly after its previous oversight in July.
Macro trader Craig Shapiro also supported the analyses of 10x Research, reinforcing that although there is significant market pressure for the Fed to accelerate its rate-cutting measures, commencing with a striking 50 bps cut may prove unwise. Shapiro emphasized the markets’ dependency on liquidity and warned that the absence of such support could ignite a market pullback as investors adjust to a new equilibrium for risk assets. He stated that until the Fed yields to market demands and provides the requisite liquidity, asset values, including Bitcoin, are likely to experience downward pressure.
Conversely, some analysts maintain an optimistic perspective, forecasting that Bitcoin may initiate a resurgence in value as early as October 2024. As of now, BTC stands at a trading price of $55,296, representing a market capitalization exceeding $1.09 trillion, as reported by CoinGecko. In conclusion, the interplay between Fed monetary policy and Bitcoin prices remains complex and fraught with potential volatility as stakeholders await forthcoming developments.
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