Bitcoin Price Outlook: Analysts Warn of Possible Short-Term Declines Amid Anticipated Fed Rate Cuts

Cryptonews Economy John Brightwater September 3, 2024

Bitcoin Price Outlook: Analysts Warn of Possible Short-Term Declines Amid Anticipated Fed Rate Cuts

As market participants closely monitor the potential interest rate cuts by the Federal Reserve, analysts are expressing caution regarding the future trajectory of Bitcoin (BTC). Recent insights suggest that, contrary to the common perception that rate cuts boost risk assets, Bitcoin may face short-term declines despite the anticipated monetary easing.

A report from Bitfinex dated September 2 indicates a significant Bitcoin price rebound of approximately 32% from its lows on August 5. However, as of now, the market has observed a cooling momentum in price increases, with Bitcoin currently trading around $58,153, reflecting a 17% rise from the recent low.

The report posits that the cryptocurrency market could be on the cusp of a “sell the news” phenomenon as the likelihood of rate reductions becomes clearer. This assertion is reinforced by data showing substantial selling pressure in the spot markets, notably at the onset of U.S. trading sessions throughout the preceding week. Furthermore, the Cumulative Volume Delta (CVD) for Bitcoin trading pairs on major centralized exchanges has reportedly decreased by approximately 66% since reaching a daily high on August 26, in stark contrast to a mere 11% drop in the CVD for Bitcoin perpetual contracts. Such findings reveal a significant disparity between spot and derivative markets, where a declining CVD typically signals increased selling pressure.

Analysts at Bitfinex clarify that while they do not view rate cuts negatively for the long-term prospects of the market, historical trends indicate an average decline of around 6% in the weeks following the last four rate cuts. This anticipated decline can be attributed to short-term investors seeking to exit the market upon the announcement of positive news, alongside macroeconomic traders reacting to these cuts as a potential “sell the news” scenario.

Additionally, the report draws attention to the historical performance of Bitcoin in the month of September, which has been marked by volatility. Since 2013, Bitcoin has experienced an average return of -4.78% in September, with an average peak-to-trough decline of 24.6% observed since 2014. Analysts estimate that a potential rate cut could result in a 15-20% decrease in Bitcoin prices, positing a price peak of around $60,000 prior to any cuts, which may lead to a potential floor in the low $50,000s to mid-$40,000s range.

Nonetheless, some market analysts maintain a more optimistic viewpoint. Matteo Greco, a Market Analyst at Fineqia, underscored that while rate cuts may initially precipitate declines, they eventually foster a positive impact in the long run. He noted that these cuts often occur amid economic slowdowns, pressuring risk assets temporarily. However, as market conditions stabilize and lower interest rates become factored into expectations, the benefits of the cuts tend to materialize. Greco anticipates a rate cut of between 75-100 basis points by the end of 2024, and he emphasized that only substantial deviations from these expectations should pose risks to market stability. Conversely, a modest cut at the upcoming Federal Open Market Committee (FOMC) meeting could be interpreted as a signal of deteriorating economic conditions, potentially causing immediate declines in prices.

The Bitfinex report also highlights prevailing market sentiment, indicating a 70% likelihood for a 25 basis point rate reduction and a 30% chance for a 50 basis point cut at the September meeting. This assessment is further bolstered by signs of a weakening labor market, illustrated by underwhelming non-farm payroll reports and a decrease in job openings, which collectively strengthen the case for imminent interest rate adjustments. In conclusion, while some analysts suggest that Bitcoin could see short-term declines in the wake of Federal Reserve actions, they remain confident in the asset’s long-term potential as the broader market adjusts to evolving economic conditions.