How may the Fed meeting affect Bitcoin?
A 50 bps decrease is 67% likely, according to the market.
Rate decreases traditionally boosted Bitcoin.
Could 50 bps rekindle recession fears?
Bitcoin bulls may test 60k-61k if they respond positively.
The Federal Reserve's two-day monetary policy meeting begins today and ends Wednesday. The US central bank will lower rates, but how much and what will Bitcoin do?
Market expectations are high that the Fed will start this rate-cutting cycle with a big decrease. The Fed funds report that the market is pricing in a 67% chance of a 50 basis point rate decrease, up from 35% a week earlier.
There are pros and cons to a 25- or 50-basis-point rate drop. The hotter-than-expected monthly core inflation reading shows that inflation remains sticky, favoring a 25-basis-point decrease. The softening labor market and faster-than-expected economic slowdown suggest a greater Fed move.
Whether the Fed cuts by 25 or 50 basis points, the market will likely witness higher volatility due to pricing uncertainty.
How did Bitcoin respond to rate cuts?
Bitcoin has historically benefited from Fed rate decreases. Bitcoin rose in March 2020 as the Fed cut rates in reaction to the epidemic.
When the Federal Reserve reduces interest rates, liquidity improves, which benefits risk assets like Bitcoin and equities. Crypto is bullish when a rate-cutting cycle begins.
However, a 50-basis-point Fed rate drop might startle the market. Bitcoin fell below 50k after the weaker-than-expected July non-farm payroll data raised concerns of a harsh landing. An outsized boost risks giving the impression that the Fed is behind the curve and needs a 50-basis-point hike to avert a catastrophic landing. This might rekindle recession worries, hurting risk assets including Bitcoin.
Since Bitcoin has rebounded from its September low of 52.5k and expectations of a 50 basis point drop have increased, this isn't our base case scenario. With this in mind, an outsized cut and soothing Fed statements might boost the digital asset.
