Most analysts believe that the Fed’s reversal in policy could signal a positive outlook for Bitcoin and the broader cryptocurrency market.
The Impact of the Fed’s Rate Cut on Bitcoin
The Federal Open Market Committee (FOMC) acted in line with many economists’ predictions by making a significant interest rate cut. The FOMC lowered the federal funds rate to a target range of 4.75% to 5.00%, marking the first reduction in four years.
A press release stated: “The Committee has gained greater confidence that inflation is steadily progressing toward the 2% target, and it assesses that the risks to its employment and inflation goals are now relatively balanced.” The release also emphasized that the economic outlook remains uncertain, and the Committee is attentive to risks affecting both aspects of its dual mandate.
Traditionally, interest rate cuts are seen as a bullish signal for Bitcoin, as monetary easing tends to weaken the U.S. dollar and encourage investment in riskier assets like BTC. In other words, as more investors are willing to take on risk, they are more likely to invest heavily in this market, which can drive Bitcoin prices higher.
At a conference, Fed Chair Jerome Powell referred to this rate cut as an “adjustment.” He argued that recent economic indicators show continued expansion, but “inflation risks have decreased while downside risks to employment have increased.”
Market participants had been anticipating a rate cut following Powell’s speech at the Jackson Hole symposium last month, where he stated that it was “time for policy to adjust” as inflation cooled and unemployment figures spiked. However, traders remained divided on whether the Fed would cut borrowing costs by 25 basis points or opt for a more significant 50 basis point reduction.
Short-term volatility forecast from analysts
Analysts at Singapore-based QCP Capital predict that the Fed’s decision on Wednesday will have a significant impact on the financial markets. They anticipate that short-term volatility will rise sharply following this substantial interest rate cut.
QCP stated, “We believe that volatility will remain high in the days following the meeting, as traders readjust their positions over the coming weeks. This shift could also signal the beginning of major macro trends.”
While strategists foresee a potential short-term decline in Bitcoin prices, they still advise investors to maintain a long-term perspective.
QCP analysts further emphasized, “Although a drop and high volatility are expected, these should not overshadow Bitcoin’s bullish momentum. We support long-term investment structures with unlimited upside potential to capitalize on Bitcoin’s possible parabolic price increases in the future.”
