Most analysts believe the Fed's policy reversal could bode well for Bitcoin and the wider crypto market.
The price of Bitcoin (BTC) rallied above the $61,000 price point on Wednesday following the United States Federal Reserve’s decision to lower its benchmark interest rates by 50 basis points.
This marks the first rate cut by the world’s most important central bank after its most aggressive hiking cycle in four years. Most analysts believe the Fed’s policy reversal could bode well for Bitcoin and the wider crypto market.
The Federal Open Market Committee (FOMC) did what many economists forecasted: It opted for a massive rate cut. The FOMC slashed its federal funds rate to a target range of 4.75% to 5.00%, marking its very first rate cut in four years.
“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” a press release stated. “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
The move comes as recent economic indicators have suggested that the economy continues to expand, but the upside risks to inflation have diminished and the downside risks to employment have increased, Fed Chairman Jerome Powell said during a press conference.
“This is a recalibration. We're not pivoting,” Powell said, regarding today's rate cut.
Market participants highly anticipated a rate cut following Powell’s proclamation at last month’s Jackson Hole symposium that “the time has come for policy to adjust” with easing inflation and soaring unemployment numbers. However, traders were split on whether the Fed would slash borrowing costs by 25 bps or opt for a jumbo-sized, 50 bps cut.
Historically, rate cuts have been considered bullish for Bitcoin, as monetary easing typically weakens the U.S. dollar and boosts demand for risk-on assets like BTC. In other words, the more investors that are willing to take risks, the more money they’ll want to put into the sector — which could catalyze the price of Bitcoin.
The price of the maiden crypto popped above the $61,000 mark immediately after the Fed announcement but has pulled back to about $59,616 as of this writing, down 0.9% on the day.
Analysts at Singapore-based QCP Capital believe that the Fed's decision on Wednesday will have a significant impact on the financial markets. They predict that there will be increased short-term volatility following the massive rate cut.
“We are confident that volatility will be high in the days following the meeting, as traders readjust their positions over the next few weeks and the regime change could also signal the start of strong macro trends,” QCP noted.
While the strategists expect possible BTC price weakness in the short term, they urge investors to focus on the long term.
“While drawdowns and high volatility are expected, don’t let it detract from the path to higher Bitcoin prices, and we favor long-dated structures with unlimited upside to capitalize on potential parabolic advances in Bitcoin prices,” the QCP analysts added.
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