If the U.S. Federal Reserve slashes interest rates for the first time in four years later this month, bitcoin analysts at Bitfinex forecast the price of the world’s largest cryptocurrency may potentially drop by up to 20%.
“This is because the positive correlation with traditional asset classes, such as U.S. equities, indicate that global economic conditions will continue to influence bitcoin’s price for now,” the firm told TheStreet Crypto.
Bitcoin {{BTC}} could drop as much as 15%-20% following a September rate cut if the easing cycle is paired with a recession, wrote the team. That would translate to a bottom somewhere in the $40,000-$50,000 range.
"Typically, rate cuts are perceived as bullish catalysts for risk assets," they wrote. "A 25 basis point rate cut would likely mark the beginning of a standard rate-cutting cycle, which could lead to long-term price appreciation for BTC as recession fears ease. Such a move would signal the Fedʼs confidence in the economyʼs resilience, reducing the likelihood of a severe downturn."
Alternatively, a larger 50 basis point cut might result in a short-lived 5%-8% spike for BTC only to be erased by growing concerns of an oncoming recession and more pain for asset prices, Bitfinex added.
"This would mirror past instances where aggressive rate cuts initially boosted asset prices, only for the gains to be tempered by rising economic uncertainties," the authors said.
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