Bitcoin (BTC) price rose above $62,000 for the first time in three weeks, after the US Federal Reserve decided to cut interest rates by 50 basis points. This decision, the first of its kind in four years, has sparked and continues to spark much debate among analysts and experts in the digital currency market, about its future effects on prices in the market.
Usually it is simple, there is an inverse relationship between interest rates and the prices of high-risk assets such as stocks and cryptocurrencies. Meaning, lowering interest rates raises the prices of the latter and vice versa.
However, due to fears that the US economy is entering a recession, the picture is not entirely clear. The rapid reduction in interest rates may send a signal of concern from monetary policymakers, prompting investors to avoid risks and head towards safe-haven assets such as Treasury bonds, gold and the US dollar.
Mixed expectations for the future
The cryptocurrency market is currently divided between optimists and pessimists about the impact of interest rate cuts. Some expect Bitcoin to hit an all-time high in the final months of 2024. But it remains unclear what role future Fed decisions will play in this.
For their part, Fed members expect the benchmark interest rate to fall to 4.4% by the end of the year, implying more cuts at upcoming FOMC meetings.
In a research note, Presto Research wrote that the market remains divided on the implications of the Fed’s 50 basis point rate cut, with mixed reactions across asset classes as concerns over growth and a potential recession weigh on investor sentiment.
Presto points out that growth concerns are still very much alive and that the market needs to shake them off for a recovery to happen. “We are now in a zone where good news is good news,” she concludes.
Market Experts: Bitcoin Temporary Rise
Some market experts expect that lower interest rates will increase liquidity in the market, which could push the price of Bitcoin to new record highs this fall.
Among them is Chris Arulia, head of institutional trading at ByBit exchange, who expressed a mixed view on the impact of interest rate cuts on the crypto market.
He pointed out that the global economic slowdown and its geopolitical challenges are affecting investor sentiment. Although lowering interest rates may provide a short-term boost to the cryptocurrency and Bitcoin market, it is necessary to be cautious about the potential challenges posed by economic uncertainty and market volatility.
In contrast, Arthur Hayes, founder of BitMEX, believes that the price of Bitcoin (BTC) will rise after interest rates are cut. He points out that increasing the money supply will lead to inflation, which may be bad for certain types of businesses, but will be good for assets with limited supply like Bitcoin.
In short, the US Federal Reserve’s decision to cut interest rates has sparked mixed reactions in the cryptocurrency market, with conflicting expectations regarding the future of Bitcoin. It remains to be seen how things will develop in the coming months. And whether the rate cut will provide the boost the market needs to achieve a sustainable recovery.
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