The great uncertainty over how much the US interest rate cut at this week’s meeting halted the rise in the price of Bitcoin, as markets remain divided over a 25-point or 50-point rate cut.
The Federal Reserve is widely expected to announce a rate cut on September 18, starting the so-called ‘easing cycle’, which has historically supported riskier assets such as Bitcoin. However, traders are divided on the size of the expected cut, paving the way for the possibility of significant volatility in financial markets after Wednesday’s interest rate.
At the moment, the Federal Interest Rate futures indicate a 50% probability that the Federal Reserve will cut interest rates by 25 basis points to the range of 5%-5.25%. Meanwhile, markets see a similar prospect of a larger 50 basis point cut to the 4.7%-5% range.
Read also: The US Federal Reserve’s upcoming interest rate decision may shake markets this week
Bullish momentum stopped
Bitcoin’s bullish momentum stalled after it rallied from recent lows of $52,530 to $58,700, due to uncertainty related to interest rate cuts. Mark Chandler, chief market strategist at Bannockburn Global Forex and author of Understanding the Dollar, said that “the market rarely enters a Fed meeting with such extreme uncertainty (between 25 basis points and 50 basis points).”
“I think a 50 basis point rate cut wouldn’t be good for riskier assets, because it signals that the Fed is more concerned about the economy, and seems to acknowledge that it should have cut rates in July,” Chandler added.
Many analysts have warned that a 50 basis point rate cut could signal panic, which could reduce demand for riskier assets, including cryptocurrencies. The likelihood of a rate cut rose by 50 basis points last week after Nick Temirius of the Wall Street Journal published an article suggesting that the size of the cut was the subject of debate. A number of Federal Reserve policymakers also raised the likelihood of a larger move, delighting riskier markets.
“The market was expecting a 25 basis point cut before some information leaked via a suspicious article put by Fed officials to put the 50 basis point option back on the table on Thursday,” Chandler said. “The market took the bait and increased the odds of two cuts by half a percentage point and a quarter percentage point in the remaining three meetings of this year.” He noted that traders should keep an eye on the summary of the Fed’s economic outlook and interest rate.
Read also:Kiyosaki: Bitcoin or Gold to invest? This is the most important before the Fed’s trap
Crypto market under Fed pressure
Bitcoin spent most of the weekend above $60,000 after positive U.S. data boosted its rally late Friday. U.S.-listed Bitcoin ETFs recorded net inflows of more than $263 million — the largest since July 22 — while Ethereum (ETH) funds recorded their second day of inflows since August 28 of $1.5 million.
However, cryptocurrency markets fell on Monday as Asian exchanges opened for trading ahead of a crucial week in which traders around the world expect the Federal Reserve to cut interest rates for the first time in more than
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