The Federal Reserve cut interest rates for the first time in four years, encouraging borrowing and spending, and the price of Bitcoin reached $62,000. But what will happen next for BTC? A rebound? A crash?
The Federal Reserve cut interest rates for the first time in four years following the September 18 FOMC meeting. The 50 basis point rate cut caused the price of Bitcoin to hit $62,000 in late New York trading. Let’s understand why this happened.
Why did the price of Bitcoin fluctuate so much after the Fed cut interest rates?
The target rate has been between 500 and 525 for the past four years, but after Wednesday’s rate cut, it has been reduced to between 475 and 500. There are also rumors that the rate will be reduced by another 50 basis points by the end of 2024.
A 50 basis point drop in interest rates means that it will become much cheaper for investors to borrow money. Therefore, a drop in interest rates will boost borrowing and spending, which is good for risky assets such as cryptocurrencies or stocks.
But markets don’t always wait for events to happen, and many investors predict outcomes and prepare in advance. As a result, BTC prices have risen 16% since bottoming on September 6. A 50 basis point rate cut, moreover, historical data shows that rate cuts are good for BTC.
The July 2019 rate cut caused the price of Bitcoin to rise by about 30% over the next two months.
In March 2020, the Federal Reserve announced an emergency rate cut due to the COVID-19 pandemic, causing BTC to rise 50% in two months.
Will BTC continue its bull run in 2023?
So, the Fed cuts interest rates by 50 basis points. Does this mean that the price of Bitcoin will rebound? Will the bull market continue? No. There are many key factors that affect BTC.
Global Economic Conditions
Inflation expectations
Central Bank Policy
Regulatory environment
Institutional Investment
Market sentiment
One event that could derail the current bullish outlook is Japan’s interest rate decision on Friday. In July, the Bank of Japan (BOJ) raised interest rates by 25 basis points, which led to a panic unwinding of the yen-dollar carry trade, which in turn caused financial markets to collapse. BoJ Governor Kazuo Ueda confirmed that there would be no immediate rate hike, which led to a recovery in financial markets. Therefore, market participants are closely watching this event to understand Bitcoin’s directional bias.
Regardless, investors expect the Bitcoin price prediction to see BTC break above $65,000 and retest the psychological level of $70,000.
