Bitcoin Price Drops With Fed Rate Cuts On The Horizon: Calm Before The Storm?

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As a seasoned researcher with a knack for deciphering market trends and economic indicators, I have witnessed firsthand the intricate dance between traditional financial markets and their digital counterparts. The recent 2.7% decline in Bitcoin’s price ahead of the anticipated rate cuts by the US Federal Reserve has piqued my interest.

In the previous 24 hours, the value of Bitcoin (BTC) decreased by approximately 2.7%, potentially due to anticipation that the United States Federal Reserve (Fed) may commence a planned reduction in interest rates this current week.

Why Did Bitcoin Decline Ahead Of Rate Cuts?

Over the course of the weekend, I found myself observing a relatively stable Bitcoin price hovering around the $60,000 mark. However, as the anticipated Federal Reserve rate cuts were set to commence this week, I witnessed an unexpected dip of approximately 2.7%. This downturn in the price of the leading cryptocurrency by market capitalization seems to align with the predictions made by Arthur Hayes, former CEO of BitMEX exchange.

If the Federal Reserve chooses to lower interest rates this coming week, it would mark the first time in four years that such a move is made as a response to decreasing inflation and efforts to boost economic growth.

According to information from Polymarkets, it seems that wagerers predict a 57% likelihood of the Federal Reserve lowering interest rates by half a percentage point (0.5%) as opposed to a 25 basis point (0.25%) decrease, which stands at a probability of 42%, as we speak.

Following an unusual amount of money creation due to COVID-19 in 2020, the Federal Reserve faced a difficult task in controlling rising inflation caused by supply chain issues, product shortages, and currency devaluation. As a result, the Fed began increasing interest rates starting from March 2022, with the last increase taking place in July 2023.

Generally speaking, reductions in interest rates are often viewed as positive signs because they make it cheaper for businesses to borrow money, which increases their willingness to take on risks and grow their operations. Additionally, it is anticipated that some of the additional monetary support will flow into riskier assets like stocks or cryptocurrencies, potentially causing their values to rise.

This time, things seem different because some experts predict that interest rate reductions may not yield the usual positive impact on high-risk investments. There could be multiple factors influencing this viewpoint.

For example, reducing interest rates when there’s economic instability and elevated joblessness could indicate to financiers that the Federal Reserve is taking preventative measures due to doubts about the economy’s robustness, potentially suggesting it may be on the verge of a recession.

Just like how it often goes, a rate cut might be seen as a ‘purchase the speculation, sell the fact’ scenario. When such circumstances arise, shrewd investors typically increase the value of high-risk assets in expectation of loosened monetary policies following the start of the rate reduction phase.

As the impending event (like the rate cuts) draws nearer, investors could decide to cash out their holdings to secure their gains, potentially causing a drop in prices prior to the formal rate reduction.

The decrease in the value of riskier investments before expected interest rate reductions might not just be due to the cuts themselves, but also because of concerns about persistent inflation. Although the August 2024 Consumer Price Index (CPI) headline data was lower than predicted, the core CPI was slightly above economic projections, suggesting that the fight against inflation is not completely over yet.

Can US Presidential Elections Ignite Another Bullish Momentum?

In a simpler context, during periods when rates are reduced, there may be an initial dip in Bitcoin and cryptocurrency values. However, a significant factor influencing their long-term price trends might be the upcoming U.S. Presidential Elections.

On multiple instances, the Republican nominee and ex-President Donald Trump has expressed his approval for the cryptocurrency sector. A recent analysis by Bernstein speculates that Bitcoin’s value could soar up to $90,000 in Q4 of 2024 if Trump were to secure another term in office.

If Kamala Harris wins, there’s a possibility that Bitcoin could drop to around $30,000. Currently, Bitcoin is valued at $58,498 and has decreased by 2.7% over the past 24 hours.

Bitcoin Price Drops With Fed Rate Cuts On The Horizon: Calm Before The Storm?

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2024-09-17 05:12