The U.S. Federal Reserve’s impending decision on interest rates this month is expected to have a substantial impact on Bitcoin‘s short and long-term price movements. Analysts suggest that a temporary rise in Bitcoin’s value may follow the Fed’s mid-September announcement, but concerns about a potential recession could lead to a subsequent correction.
Analysts Predict Bitcoin’s Potential Drop
Market experts propose that a 25 basis point rate cut could mark the start of a traditional easing cycle, while a more significant 50 basis point cut might trigger an immediate surge in Bitcoin’s price. However, recession anxieties may prompt a corrective phase. Bitfinex analysts predict that Bitcoin could experience a decline of up to 20% from its current value after the rate decision, potentially settling between $40,000 and $50,000.
Economic indicators such as the Sahm Rule, which correlates rising unemployment with increased recession risk, have raised concerns. Unemployment typically curtails spending and hampers growth. According to the New York Federal Reserve Bank, an inverted U.S. Treasury yield curve suggests a 50% likelihood of a recession within the next year.
How Will the Crypto Market React?
BRN analyst Valentin Fournier pointed out that the Fed’s rate changes often spark a “sell the news” event, implying that the anticipated rate cut on September 18 could drive Bitcoin to the $50,000 mark. Fournier projects that major cryptocurrencies might decline by an average of 4.35% in September.
Bitfinex analysts added that the stock market usually experiences a short-term rise following rate cuts. They highlighted that historical data from the past nine rate cut cycles showed drops of up to 20% in the initial month, suggesting that Bitcoin, with its increasing correlation to traditional risk assets like the S&P 500, will likely follow similar price movements tied to global macroeconomic conditions.
Key Takeaways for Investors
Investors should consider the following insights amid the current economic climate:
- Monitor the Fed’s rate decision closely, as it could lead to significant Bitcoin price changes.
- Be prepared for potential short-term gains followed by corrective phases.
- Bitcoin’s price could correlate with traditional market movements, particularly during economic uncertainty.
- Keep an eye on global economic indicators, such as the Sahm Rule and Treasury yield curves, for signs of recession.
Investors must exercise heightened caution during these uncertain economic times. July’s U.S. housing market data hit a record low, and declining mortgage rates have not revived the market. Moreover, the People’s Bank of China’s liquidity measures to bolster slowing economic growth may also affect cryptocurrencies.
The CME FedWatch tool indicates a 67% probability of the Fed implementing a 25 basis point cut this month, with a 33% likelihood of a 50 basis point cut.