Fed Rate Cut May Boost Bitcoin and Crypto, but Watch for Short-Term Dips – Analysts

The Federal Reserve is expected to cut interest rates by 25 to 50 basis points on September 18, which could increase Bitcoin’s price, say market analysts.

This will be the Fed’s first rate cut in four years. A month ago, a 25 basis point (bps) cut seemed likely, but recent changes now suggest a 50 bps cut might happen. Futures trading data show a 60% chance of a half-point cut, up from 28% a week ago and 50% on Monday.

Analysts believe that lower interest rates could help the crypto market in the long run. However, they also warn that prices might drop in the short term depending on the size of the cut. The current Fed interest rate is between 5.25% and 5.50%.

Shubh Varma, CEO of Hyblock Capital, told that the uncertainty between a 25 bps and 50 bps cut shows “maximum uncertainty” in Fed policy. Varma explained that a 50-point cut might create short-term negative market sentiment, as it could suggest the Fed is trying to prevent a recession. In contrast, a 25-point cut might be seen as more balanced, which could be good for crypto.

Fed Chair Jerome Powell said in August that it was time to cut rates, adding that he does not want further weakening in the job market. The Fed is under pressure to make a bigger cut after the recent unemployment report showed that the U.S. economy added 142,000 jobs in August, less than the 163,000 predicted. The jobless rate also dropped to 4.2% from 4.3% in July.

Varma pointed out that the uncertainty in Fed policy is made worse by technical factors in the crypto market. He noted that when less than 45% of retail investors expect Bitcoin prices to rise, it often signals a possible market downturn.

According to Varma, there are two key price levels where a lot of Bitcoin buying and selling could happen as the Fed gets ready to cut interest rates. There is some liquidity around the $61,300 – $61,400 range, but more liquidity is building in the $56,900 – $57,300 area. If Bitcoin’s price rises to the $61,300 – $61,400 range and retail investors’ long percentages fall below 45%, it might indicate a chance for short-term selling. The activity below this range could be good spots for taking profits, especially if there is a 50 bps cut.