The upcoming Fed meeting could have a significant impact on Bitcoin. The market currently suggests a 67% chance of a 50 basis point (bps) rate decrease, a notable increase from just 35% last week. Rate decreases have historically been favorable for Bitcoin, and some speculate that a positive reaction could lead Bitcoin bulls to test the $60k-$61k range.
The Federal Reserve’s two-day policy meeting, beginning today and concluding on Wednesday, is expected to result in a rate cut, though the exact magnitude remains uncertain. Market participants anticipate that the Fed may kick off a cycle of rate reductions with a sizable cut, possibly by 50 bps. While a smaller 25 bps cut is also in play, supported by persistently high core inflation, a deeper 50 bps reduction could be on the table due to signs of economic softening and a cooling labor market.
Regardless of the outcome, markets are likely to see increased volatility as investors react to the Fed’s decision. Historically, Bitcoin has thrived during periods of monetary easing, such as in March 2020 when it gained in response to the Fed slashing rates during the pandemic.
Rate cuts typically increase liquidity, which is beneficial for risk assets like Bitcoin. However, a larger-than-expected cut could unsettle the market. Concerns of a recession could resurface, as a 50 bps cut might suggest that the Fed is acting aggressively to prevent a harsher economic downturn. This could lead to fears of a more severe landing, potentially causing Bitcoin to retreat, as seen when weaker-than-expected job data in July 2021 pushed Bitcoin below $50k.
While Bitcoin has rebounded from its September low of $52.5k and expectations of a 50 bps cut have risen, the outcome is not guaranteed. Should the Fed issue reassuring statements alongside a larger cut, Bitcoin could experience further gains. However, any signals of heightened recession risk could temper enthusiasm in the market.