Market participants They are anxiously waiting the next meeting of the Federal Open Market Committee (FOMC), which is expected play a crucial role In shaping the short-term outlook for Bitcoin and other digital assets, the focus is on the possibility of an interest rate cut, and many traders and investors have been speculating about it for some time now.
Although the exact magnitude of the rate cut has not yet been confirmed, there are General expectation The FOMC decision could either lead to a sell-off in risky assets like bitcoin or give them a boost, according to a leading economist.
Economist predicts massive “news selling” event
In a recent conversation In an interview with The Block, Steve Hanke, an economist at Johns Hopkins University, shared his perspective on the potential implications of the US Federal Reserve’s planned interest rate cut for the cryptocurrency sector. According to Hanke, a 25 basis point rate cut, which many investors currently expect, could ultimately result in a “sell the news” event for the broader cryptocurrency industry.
He explained that the market has already priced in the possibility of such a reduction and that it has been absorbed by the price action of various investment markets. Indeed, once the cut is officially announced, the market reaction could be disappointing, potentially triggering a wave of selling among cryptocurrencies.
Unlike the more widely expected 25 basis point reduction, Hanke noted that a 50 basis point cut by the Fed has not yet been fully factored into the market. Therefore, a 50 basis point cut by the Fed could surprisingly “give the market a boost.”
What to expect in light of the upcoming FOMC meeting
Inflation in the United States is starting to slow, and Federal Reserve Chairman Jerome Powell signaled last month that “the time has come” to cut rates. Rate points are currently in the 5.25% to 5.50% range, their highest level in 23 years. In the context of the Federal Open Market Committee (FOMC), rate points refer to changes in the federal funds rate. The Fed raises or lowers interest rates primarily to stimulate economic growth and control inflation.
In theory, a Federal Reserve interest rate cut could create a favorable environment for cryptocurrencies. Rate cuts mean that traditional savings and fixed-income investments (such as bonds) offer lower returns, prompting risk-averse investors to turn to cryptocurrencies.
However, given current market conditions, predicting the market reaction to a rate cut Easier said than done At the time of writing, this is because the expected rate cut is a contributing factor to Bitcoin’s surge earlier in the year, leading to speculation that the rate cut is already priced in.
At the time of writing this, Bitcoin is trading around $60,000, up 3.5% in 24 hours.
Featured image created with Dall.E, chart from Tradingview.com
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