The Federal Reserve will announce its September interest rate decision at 2 a.m. Beijing time on Thursday, and the market generally expects the Federal Reserve to maintain the current interest rate or postpone the rate cut. I analyze that the impact of this on cryptocurrencies such as Bitcoin (BTC) may be reflected in the following aspects:
1. The expectation of no interest rate cuts puts short-term pressure on the market
Although some investors are looking forward to a rate cut, if the Fed keeps interest rates unchanged, it may put some pressure on BTC prices in the short term. The reason is that investors may be disappointed that liquidity has not increased as expected, especially against the backdrop of a global economic slowdown, and the cryptocurrency market is very sensitive to interest rate decisions.
2. Cryptocurrency’s narrative of fighting inflation
If the Fed does not cut interest rates or postpones the rate cut, the market may interpret it as the measures to fight inflation have not been relaxed. Investors may continue to focus on BTC as a tool to fight inflation, especially from the perspective of long-term holders. Bitcoin is considered "digital gold" and has deflationary properties, so it may attract investors who are looking for value preservation.
3. Market expectations and short-term fluctuations
Although the market widely predicts that the Fed will not cut interest rates in the short term, any move that is inconsistent with expectations will trigger sharp fluctuations. If the Fed unexpectedly decides to cut interest rates, this may immediately push up the price of BTC because the market will interpret it as the Fed further easing monetary policy and releasing more liquidity. In addition, if the Fed hints at the possibility of future interest rate cuts in its post-meeting statement, this will also trigger a similar effect.
4. The chain reaction of the global macroeconomic environment
The Fed’s interest rate policy not only affects the U.S. domestic market, but also has an impact on the world through the U.S. dollar. Since most BTC transactions are denominated in U.S. dollars, if interest rates remain high and the U.S. dollar strengthens, it may curb the upside of BTC. However, if future monetary policy turns to easing and the U.S. dollar weakens, Bitcoin and other cryptocurrencies may attract more safe-haven funds, thereby driving up prices.
5. Sentiment correlation of risk assets
The Fed’s monetary policy is closely related to the sentiment of the global capital market. If the decision not to cut interest rates leads to pressure on the stock market or other high-risk assets, BTC may also follow the market sentiment fluctuations in the short term. However, BTC has a certain decoupling characteristic from the traditional market. When the market loses confidence in traditional assets, some funds may flow into cryptocurrencies.
6. Long-term effects
In the long run, the pace at which the Fed maintains or cuts interest rates will have a significant impact on the investment appeal of BTC. As global inflationary pressures continue, many investors view BTC as an inflation-resistant and safe-haven asset. If the Fed enters a rate cut cycle in the coming months or in 2024, crypto assets such as BTC may continue to gain market attention and have an upward trend.
Summarize
In the short term, if the Fed does not cut interest rates as expected by the market, BTC may face some volatility or pressure, especially due to the failure of expectations of increased liquidity. But in the long term, especially after the start of the interest rate cut cycle, BTC may gain more favor among investors as a risk asset and anti-inflation tool. If you are a long-term investor, the price of BTC may gain long-term support from looser global monetary policies.
