Fed Rate Cut May Lead Bitcoin to $45K, Bitfinex Analysts Warn

Cryptonews Economy John Brightwater September 3, 2024

Fed Rate Cut May Lead Bitcoin to $45K, Bitfinex Analysts Warn

As the United States Federal Reserve (Fed) prepares to implement new monetary policy strategies in September, analysts from Bitfinex have raised concerns regarding the potential impact on Bitcoin’s (BTC) market value. In a comprehensive research report, these analysts caution that BTC might experience a decline of as much as 20% should the Fed opt for a reduction in interest rates. They emphasize that such a rate cut could significantly affect both the short-term volatility and the long-term trajectory of Bitcoin’s price.

Despite Bitcoin’s reputation as a safeguard against traditional financial fluctuations, the analysts highlight its susceptibility to prevailing macroeconomic conditions. The report notes that Bitcoin has risen over 32% since early August, largely due to market speculation surrounding the Fed’s anticipated dovish stance. However, there has been a noticeable shift in market behavior, as spot traders have been selling their BTC aggressively while futures market participants continue to buy.

The analysts project that if the Fed enacts a modest reduction of 25 basis points, the market is likely to react positively, with expectations of long-term appreciation in Bitcoin’s value as liquidity increases and recession fears abate. Conversely, if a more drastic cut of 50 basis points is imposed, it could lead to a temporary surge in Bitcoin’s price by approximately 8%, although such a spike would likely be followed by a significant decline due to renewed recession anxieties.

Citing historical precedents, the analysts reference the turmoil following a similar rate cut in 2019, which led to a drastic 50% drop in Bitcoin’s value before stabilization occurred. However, the Bitfinex experts note that the current circumstances differ markedly from those of 2019, citing that Bitcoin has endured two halving events since then and that the global economy is not currently grappling with pandemic-related challenges.

Moreover, the analysts predict a possible price contraction for Bitcoin in the range of 15-20% subsequent to any rate changes. Examination of historical data indicates that peaks in percentage returns have generally diminished by 60-70% with each cycle, coupled with a decrease in the average corrections observed during bull markets. Based on their analysis, they anticipate Bitcoin’s price to reach approximately $60,000 before any cuts, forecasting that the potential low point could fall between the lower $50,000s and mid $40,000s.

Additionally, September’s historical volatility, particularly concerning Bitcoin, could further exacerbate market fluctuations. Since 2013, Bitcoin has exhibited an average return of -4.78% in September, with peak-to-trough declines averaging around 24.6% since 2014.

In spite of the anticipated challenges for September, the analysts from Bitfinex maintain an optimistic outlook on Bitcoin’s long-term prospects, asserting that the volatility within the market presents both risks and opportunities for traders.