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A major Fed rate cut could signal trouble in the economy and cause fear in the market
A 50bp decline could prompt investors to exit risk assets, including BTC
A rate cut of only 25 bps would be seen as a positive for Bitcoin
The US Federal Reserve may cut interest rates by 0.50% at its next meeting. We look into why this could have unexpected consequences for Bitcoin (BTC)
Interest rate cuts typically benefit riskier assets, including Bitcoin (BTC) and other cryptocurrencies. However, such a large cut could signal serious problems in the U.S. economy, making investors more cautious.
How Fed Rate Cuts Could Affect Bitcoin
Historically, the Fed has favored smaller adjustments, typically 0.25%. But the possibility of a 0.50% cut is becoming increasingly likely. That could indicate the central bank is lagging in addressing economic weakness, especially after disappointing employment reports.
Marcus Thielen, founder of 10X Research, warned that such a significant decline could be seen as a sign of emergency measures. This could lead to a move away from risky assets, including BTC:
"While a 0.50% rate cut may signal deeper concerns to markets, the Fed's primary goal is to reduce economic risks, not manage market reactions."
Concerns about a slowing economy suggest that a major rate cut may be imminent. If the Fed cuts rates by 0.50%, it could indicate that the economy is worse than expected. Accordingly, it could trigger a flight to safer assets. This would likely hurt Bitcoin, as investors seek stability in times of uncertainty.
The Chicago Mercantile Exchange's (CME) FedWatch tool puts the chance of a 0.50% rate cut at 25%, fueling market speculation.
Mati Greenspan, CEO of Quantum Economics, shared his opinion with BeInCrypto. He believes that a 0.25% rate cut could support the price of BTC, but a 0.50% cut could have the opposite effect. Such a drastic move could be perceived as an “act of desperation,” which would cause a negative reaction in the market, Greenspan believes. He adds: “That’s why such a move is very unlikely.”
Indeed, Bitcoin's recent rally is believed to have been partly driven by expectations of a modest rate cut.
“The current expectation is that the Federal Reserve will cut interest rates by 0.25%. This will be bullish for financial assets like stocks and cryptocurrencies as it will reduce the cost of borrowing,” Greenspan said.
Thus, BTC investors generally view rate cuts positively. However, a larger-than-expected cut could be associated with looming economic troubles. Such an outcome could potentially put pressure on the cryptocurrency.
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