Why Bitcoin Price Jolts After Fed’s First Interest Cut in 4 Years

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As a seasoned analyst with over two decades of experience in financial markets, I’ve witnessed numerous events that have shaped the economic landscape. The recent interest rate cut by the Fed has undeniably sent ripples through the cryptocurrency market, with Bitcoin reaching an all-time high of $62,000 post-FOMC meeting.

Following the Federal Open Market Committee (FOMC) meeting on September 18, the Fed decided to lower interest rates for the first time in four years. This reduction by 0.5% led Bitcoin‘s price to surge up to $62,000 during the closing trading session in New York. Now let’s explore the reasons behind this increase.

Why Bitcoin Price Jolts After Fed’s First Interest Cut in 4 Years

Here’s Why Bitcoin price Jolts After Fed’s Interest rate cut?

Over the last four years, the desired interest rate fluctuated between 500 and 525. However, following the recent rate reduction on Wednesday, it now falls within the 475 to 500 bracket. Additionally, there are discussions suggesting another potential 50 basis point reduction by the close of 2024.

Lowering interest rates by half a percentage point makes it less expensive for investors to take loans. Consequently, a decrease in rates encourages more borrowing and spending, which can be beneficial for speculative investments such as cryptocurrencies or equities, suggesting an optimistic outlook for these “risk-on” assets.

But the markets do not always wait for the event, many investors anticipate the outcome and prepare ahead. As a result, BTC price saw a 16% rally since the September 6 bottom. The 50 bps rate cut 

Additionally, historical data shows that rate cuts are bullish for BTC. 

    The July 2019 rate cuts saw Bitcoin price rise ~30% in the next two months.
    The Fed called for an emergency rate cut in March 2020 due to the COVID-19 pandemic, resulting in a 50% rally in BTC within two months.

Will BTC Continue 2023 Bull Run? 

Indeed, the Federal Reserve just reduced interest rates by half a percentage point. However, this doesn’t necessarily imply an immediate surge in Bitcoin prices or the continuation of the bull run. Several crucial elements significantly influence Bitcoin, so it’s not as straightforward as you might think.

  1. Global economic conditions
  2. Inflation expectations
  3. Central bank policies
  4. Regulatory environment
  5. Institutional investment
  6. Market sentiment

One event that could disrupt the ongoing bullish outlook is Japan’s interest rate decision on Friday. In July, when the Bank of Japan (BOJ) raised interest rates by 25 bps, it caused a panic closing of the YEN-USD carry trades, leading to a financial market meltdown. The central bank’s Kazuo Ueda confirmed that there wouldn’t be any imminent rate hikes, which resulted in recovery of the financial markets. As a result, market participants are closely watching this event to get a read on Bitcoin’s directional bias. 

Despite any uncertainties, analysts anticipate that the price of Bitcoin will surpass $65,000 and touch the psychologically significant mark of $70,000 according to their forecasts.

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2024-09-19 14:20