This rate reduction is the first since the COVID-19 pandemic disrupted the global economy over four years ago.
Bitcoin (BTC) price experienced significant volatility following the U.S. Federal Reserve’s decision to slash borrowing rates for the first time in four years.
The move, announced on Sept. 18, saw the Fed cut its benchmark federal funds rate by 50 basis points to 4.75%-5%, a decision that was largely anticipated by the market.
However, the magnitude of the rate cut and its impact on various asset classes surprised many traders.
Bitcoin price rises after Fed rate cut
The Fed’s decision to implement a 50 basis point reduction was met with mixed reactions from the crypto community.
While many analysts believed that the interest rate reductions were already factored into the pricing of riskier assets like bitcoin, figures like Arthur Hayes argued that such moves by the U.S. Federal Reserve could ultimately harm the market.
Before the official announcement, Bitcoin had already climbed from $57,600 to $60,000. Following the Fed’s decision, Bitcoin experienced significant volatility, with its price fluctuating up and down several times in the hours immediately after the announcement.
At the time of writing, Bitcoin (BTC) has settled down and is trading at $61,969, up 2.8% according to data from crypto.news. The crypto asset’s daily trading volume had increased by 17%, hovering around $48.2 billion, while its market cap stood at $1.22 trillion.
Liquidations have surged to $200 million daily, with the majority coming from short positions. Bitcoin is at the forefront with $75 million in liquidated positions, followed by Ethereum with $35 million.
According to Alternative data, the Bitcoin fear and greed index has now moved from fear to neutral.
The Fed’s decision follows signals from Chairman Jerome Powell at the Jackson Hole symposium last month, where he hinted at the need for a policy shift amid cooling inflation and rising unemployment.
Market sentiment ahead of Wednesday’s decision was split. Traders were divided on whether the Fed would deliver a 25 bps or a more substantial 50 bps cut. According to the CME FedWatch Tool, the market had priced in a 40% chance of a smaller cut and a 60% probability of the larger 50 bps reduction, which ultimately materialized.
The rate cut also spurred heightened volatility in the precious metals market, with gold prices initially surging from $2,550 per ounce to a record high of $2,600, before dipping back to $2,545 and finally settling at $2,567.
Similarly, the U.S. stock market initially saw gains but later experienced slight declines. The S&P 500 began the day at 5,641, peaked near 5,680, but ultimately closed at 5,618. The Nasdaq Composite followed a comparable pattern, opening at 17,663, climbing above 17,800, and finishing at 17,573. The Dow Jones Industrial Average saw less fluctuation yet still concluded the day with a small loss.
While it may be premature to draw broad conclusions, the initial 12-hour period post-rate cut suggests that riskier assets, like cryptocurrencies, have initially benefited from the Fed’s decision. However, only time will reveal if this will prove to be a positive trend or if Hayes’s longer-term pessimistic forecast holds true.
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