Bitcoin Price Drops As Fed Rate Cuts Approach: Calm Before The Storm?



Bitcoin (BTC) fell 2.7% in 24 hours as the US Federal Reserve (Fed) prepares to lower rates this week.


Why Did Bitcoin Fall Before Rate Cuts?


After hovering over $60,000 all weekend, BTC fell 2.7% ahead of the Fed's projected rate reduction this week. The biggest cryptocurrency by market cap's price behavior matches Arthur Hayes' forecast.


The first rate decrease in four years would boost the economy if the Fed reduces rates this week despite falling inflation.


Polymarkets data shows that bettors are assigning the Fed a 57% likelihood of cutting rates by 50 bps and 42% of cutting by 25 bps at press time.


After the 2020 COVID-19-induced money printing, supply-chain bottlenecks and currency debasement made it difficult for the Fed to fight rising inflation. In March 2022, the Fed began a rate-hike cycle that ended in July 2023.


Lower borrowing rates for companies increase their willingness for risk and allow them to grow, making rate drops positive. Naturally, risk-on assets like stocks and cryptocurrencies will absorb part of the new monetary stimulus, pushing them higher.


Many analysts believe rate reduction may not have the anticipated impact on risk-on assets, so things are not as usual this time. Several factors may influence this evaluation.


For instance, rate decreases amid economic uncertainty and high unemployment may indicate to investors that the Fed is in damage-control mode and not confident enough in the economy to prevent a recession.


Rate cuts may be a ‘buy the rumor, sell the news’ occurrence. Smart investors raise the price of risk-on assets in expectation of softer monetary circumstances following the rate-cut cycle.


Can US presidential elections spark another bullish wave?
While the fear preceding rate cuts may hurt Bitcoin and cryptocurrency prices in the near term, the US Presidential Elections might determine their price direction.

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