Bitcoin rallied above the $61,000 price point on Wednesday following the United States Federal Reserve’s decision to lower its benchmark interest rates by 50 basis points, marking the first rate cut since 2020 after the world’s most important central bank’s most aggressive hiking cycle.
Most analysts believe the Fed’s policy reversal could bode well for Bitcoin and the wider crypto market.
Fed Rate Cut: What It Could Mean For Bitcoin
The Federal Open Market Committee (FOMC) did what many economists forecasted: It opted for a massive rate cut. The FOMC slashed its federal funds rate to a target range of 4.75% to 5.00%, marking its very first rate cut in four years.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” a press release stated. “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
Historically, rate cuts have been considered bullish for Bitcoin, as monetary easing typically weakens the U.S. dollar and boosts demand for risk-on assets like BTC. In other words, the more investors that are willing to take risks, the more money they’ll want to put into the sector — which could catalyze the price of Bitcoin.
The price of the maiden crypto popped above the $61,000 mark immediately after the Fed announcement but has pulled back to about $59,616 as of this writing, down 0.9% on the day.
During a conference, Fed Chairman Jerome Powell called today’s rate cut a “recalibration.” Recent economic indicators have suggested the economy continues to expand, he posited, but the “upside risks to inflation have diminished and the downside risks to employment have increased.”
Market participants highly anticipated a rate cut following Powell’s proclamation at last month’s Jackson Hole symposium that “the time has come for policy to adjust” with easing inflation and soaring unemployment numbers. However, traders were split on whether the Fed would slash borrowing costs by 25 bps or opt for a jumbo-sized, 50 bps cut.
Analysts Foresee Short-Term Turbulence
Analysts at Singapore-based QCP Capital anticipate the Fed’s decision on Wednesday to have a considerable impact on the financial markets. In particular, they predict increased short-term volatility after the massive rate cut.
“We are confident that volatility will be high in the days following the meeting, as traders readjust their positions over the next few weeks and the regime change could also signal the start of strong macro trends,” QCP noted.
While the strategists expect possible Bitcoin price weakness in the short term, they urge investors to focus on the long term.
“While drawdowns and high volatility are expected, don’t let it detract from the path to higher Bitcoin prices, and we favor long-dated structures with unlimited upside to capitalize on potential parabolic advances in Bitcoin prices,” the QCP analysts continued.
