What Crypto Fans Need to Know as Bitcoin Rises After Fed's Rate Cut

Analysts Notebook joined discussion · Sep 19, 2024 16:07

The Federal Reserve cut its benchmark interest rate by half a percentage point to a range of 4.75% to 5%, signaling the start of an easing cycle aimed at pre-empting economic and labor market weakening. This is the first rate cut in over four years and the first significant reduction since the pandemic. Fed Chair Jay Powell emphasized the move aims to maintain economic strength and manage inflation. The decision saw immediate market reactions, with US stocks initially rallying before closing slightly down, and the Treasury yield curve steepening. Asian markets also rallied following the announcement. The Fed's latest projections indicate further rate cuts are expected, potentially bringing the policy rate down to 4.25% to 4.5% by the end of 2024.

BTC Surges Following Fed's First Rate Cut Since 2020

What Crypto Fans Need to Know as Bitcoin Rises After Fed's Rate Cut

$Bitcoin (BTC.CC)$'s price climbed toward $62,000 following the Federal Reserve's announcement of a 50 basis points interest rate cut, aimed at preventing a labor market slowdown. This rate cut, larger than some expected, boosted cryptocurrency prices, with Bitcoin and $Ethereum (ETH.CC)$ rising due to their perception as risk-on assets. Shares of crypto-linked companies like $Coinbase (COIN.US)$ and $MicroStrategy (MSTR.US)$ also saw gains. Despite briefly surpassing $70,000 in July, Bitcoin has recently struggled to maintain levels above $60,000. Further rate cuts are anticipated through the end of the year.

Marc P. Bernegger, co-founder of AltAlpha Digital, believes that the anticipated reduction in the federal funds rate could drive higher cryptocurrency prices by increasing liquidity and attracting investors to riskier assets. He expects the Federal Open Market Committee's announcement of lower rates to act as a bullish catalyst for digital currencies, potentially igniting a year-end rally. Bernegger suggests that the rate cut could set the stage for a crypto bull market fueled by increased liquidity, lower borrowing costs, and favorable market sentiment.

"I expect a boost for the crypto markets, particularly because lower interest rates tend to increase liquidity and make riskier assets like cryptocurrencies more attractive to investors. A reduction in rates could serve as a catalyst for a year-end rally. The potential rate cut might set the stage for a crypto bull market, driven by increased liquidity, lower borrowing costs and a quite favorable market sentiment," Bernegger said.

What the Fed's Rate Cut Means for Bitcoin

• Bitcoin Could Face More Uncertainty

The Federal Reserve's decision to cut interest rates by 50 basis points highlights deeper economic struggles than previously acknowledged by policymakers. This shift from aggressive tightening to damage control reflects concerns over potential recession, stagnating job growth, and financial system weaknesses. While such monetary easing typically benefits Bitcoin by weakening the dollar, the scale of this cut suggests severe economic uncertainties, potentially leading to increased market volatility, including in cryptocurrencies.

The Federal Reserve's 50 basis points rate cut sends mixed signals for Bitcoin. Traditionally positive for hard assets due to inflationary effects, this cut feels more like an emergency response to economic instability. If perceived as a sign of deeper economic trouble, Bitcoin could face a risk-off selloff. Recently, Bitcoin has struggled to maintain its summer gains, dropping from highs of $65,000 in August to below $59,000. With the latest rate cut, Bitcoin may experience increased turbulence as investors reassess economic conditions.

• Bitcoin's Resilience Amid Global Monetary Easing

Despite potential short-term volatility from the Fed's aggressive rate cut, Bitcoin's long-term outlook remains strong. As central banks worldwide respond to economic weakness with monetary expansion, Bitcoin's value as an independent global financial network is reinforced. While the immediate market reaction to the 50 basis points cut may introduce turbulence, Bitcoin's appeal as a refuge from fiat debasement grows stronger. Investors may face near-term volatility, but Bitcoin's fundamentals continue to validate its role as decentralized, sound money in a mismanaged fiat economy.

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Source: Forbes, mint, CoinDesk, Financial Times, Investopedia

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