A potential 50 basis points (bps) interest rate cut by the U.S. Federal Reserve (Fed) this month could negatively impact Bitcoin (BTC), warns 10x Research. The Fed, which has been increasing rates since March 2022 to combat inflation, is now expected to reverse course and begin cutting rates to stimulate the economy.
Risk for Bitcoin
The fear is that a 50 bps cut, signaling deeper concerns about the U.S. economy, may prompt investors to flee risk-on assets like Bitcoin. The Bureau of Labor Statistics’ September 6, 2024 report showed fewer-than-expected jobs were created, giving the Fed room to cut rates to avoid economic damage. However, 10x Research cautions that such a significant rate cut might indicate to the market that the Fed believes it is too late to avert an economic downturn, sparking fears in risk markets.
Market Sensitivity and Bitcoin Price
According to 10x Research founder Markus Thielen, a 50 bps cut would raise concerns in the market, even though the chance of this happening is only 29%. Many believe the Fed missed signs of labor market weakness and now must act swiftly to manage the economy.
Macro trader Craig Shapiro supports this view, warning that the markets are highly dependent on liquidity. In his view, a drastic cut could trigger a sell-off in risk assets like Bitcoin until the Fed provides further stimulus. Shapiro suggests that the Fed must strike a delicate balance to avoid spooking investors.
Bitcoin’s Potential Rally
Despite these concerns, some analysts believe that Bitcoin could start another rally by October 2024. As of now, BTC is trading at $55,296, with a market cap of over $1.09 trillion. However, the effects of a potential rate cut on Bitcoin and other risk assets remain uncertain.
