The Federal Reserve’s anticipated shift towards a rate-cutting cycle next week has the cryptocurrency and stock markets on edge. A significant move, such as a 50 basis point (bps) cut, could reshape the landscape for risk assets like Bitcoin, with the potential to stir substantial market reactions.
A 50 Basis Point Cut – What’s At Stake?
The Federal Reserve’s potential 50 bps cut has sparked a wave of speculation, particularly as the chance of this sizable reduction currently stands below 30%. According to Markus Thielen, founder of 10x Research, such a dramatic move would likely signal severe economic concerns, leading investors to retreat from high-risk assets. Thielen suggests that while the Fed aims to mitigate economic risks, a 50 bps cut might reveal deeper anxieties about the economy’s health.
The Chicago Mercantile Exchange’s FedWatch tool reflects a 29% probability of this larger cut, a figure that contrasts sharply with broader market expectations. Thielen’s perspective is echoed by other market experts who argue that the Fed could be lagging, particularly after July’s disappointing labor data.
Bitcoin’s Response – A Surge Amidst Uncertainty
Despite the looming uncertainty, Bitcoin has shown impressive resilience. On Friday, the cryptocurrency surged to nearly $60,000, marking its highest point since early September. The price spike, reaching $59,735 with a 2.5% gain for the day, comes as traders speculate that the Fed might deliver a more substantial cut than anticipated. This optimistic sentiment follows a slump in September when Bitcoin fell to $53,300 after a lackluster August jobs report.
The recent recovery suggests that traders believe the Fed’s decision could boost risk assets like Bitcoin. However, this speculation is also driving discussions about future price predictions for the cryptocurrency.
Not everyone is convinced that a rate cut will provide a lasting boost. Macro trader Craig Shapiro warns that a 50 bps cut could trigger market corrections. He argues that markets reliant on liquidity might seek even deeper cuts from the Fed, potentially placing downward pressure on assets like Bitcoin until further reductions are made.
Also Read: Bitcoin Surges Past $60,000 – Institutional Buy-In Sparks 4.25% Rally, Could Defy September Trend
Is the Rate Cut Already Priced In?
Historically, the initiation of a rate-cutting cycle does not always result in immediate asset price increases, leaving investors wary. Bitcoin’s impressive rise from $20,000 earlier in 2023 was largely fueled by expectations of Federal Reserve easing. This raises the question: has the upcoming rate cut already been factored into Bitcoin’s price? While traders appear to have anticipated the potential cut, analysts remain optimistic that Bitcoin will sustain its upward trend, with any minor declines unlikely to have a major impact.
As the Federal Reserve prepares to unveil its decision, all eyes will be on its implications for Bitcoin and other risk assets. The forthcoming announcement could play a pivotal role in shaping market dynamics over the coming months, making it a crucial event for investors to monitor closely.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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