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A 50 basis point (bps) interest rate cut by the US Federal Reserve (Fed) starting this month could negatively impact the price of Bitcoin (BTC), 10x Research says precautions.
A 50 basis point rate cut could spook the market
After he had begin After raising interest rates in March 2022 to contain runaway inflation due to COVID-related supply chain bottlenecks and money printing, the Fed is now poised to begin cutting interest rates to stimulate the economy. However, it is possible that by initiating a 50bps rate cut, the Fed is sounding the alarm for risk assets such as Bitcoin.
Data released September 6, 2024 by the Bureau of Labor Statistics said Although unemployment declined slightly, the U.S. economy generated fewer jobs than expected. This paved the way for the Fed to begin its rate-cutting cycle, as the central bank does not want high interest rates to cause irreparable damage to businesses.
Related Readings
10x Research notes that a 50bps rate cut on September 18, 2024 could signal a sense of concern about the economy. It could also, unintentionally, mean that the Fed believes it is too late to manage the crisis. imminent economic slowdown, forcing investors to move away from risky assets such as stocks and cryptocurrencies.
For the uninitiated, a basis point is 1/100th of a percentage point. Central banks around the world typically raise or lower interest rates by 25 bps or more, depending on the urgency. It’s worth noting that the Fed has raised interest rates by 50 or even 75 bps multiple times in 2022 to combat inflation.
In a note shared with clients today, Markus Thielen, Founder of 10x Research, said:
Although a 50 basis point cut from the Fed could signal deeper concerns to markets, the Fed’s primary goal will be to mitigate economic risks rather than manage market reactions.
Addition :
The probability of a 50 basis point cut is only 29%, which contrasts with our view and the general consensus. There is growing support for the Fed being a laggard, having failed to detect signs of labor market weakness after being caught off guard in July.
It is essential that the Fed walks a very fine line
Craig Shapiro, macroeconomic trader echoes 10x Research concludes in an article on X, stating that despite market pressure on the Fed to “go deeper and faster” with rate cuts, it is unlikely to back down by starting with a 50bp cut.
Shapiro added that markets are addicted to liquidity and in its absence they “revolt, sell off and find the lowest strike level” that forces the Fed to accelerate rate cuts and provide more liquidity. Shapiro said risk assets will lose value until the Fed capitulates and gives the market what it wants.
Related Readings
On the other hand, other analysts think that Bitcoin could start a new rally around early October 2024. At press time, BTC is trading at $55,296, with a total market cap of over $1.09 trillion, according to to CoinGecko.
Featured image from Unsplash.com, chart from TradingView.com
