A 50 basis point (bp) interest rate cut by the US Federal Reserve (Fed) starting this month could negatively impact the price of Bitcoin (BTC), 10x Research Precautions.
50 basis point rate cut could spook the market
After he had began Having raised interest rates in March 2022 to contain runaway inflation due to COVID-related supply chain bottlenecks and money printing, the Fed is now ready to start cutting interest rates to stimulate the economy. However, there is a chance that by initiating a 50 basis point rate cut, the Fed could raise the alarm about risk assets like bitcoin.
Data released September 6, 2024 by the Bureau of Labor Statistics fixed While unemployment has declined slightly, the US economy has generated fewer jobs than expected, paving the way for the Federal Reserve to embark on its rate-cutting cycle as the central bank does not want high interest rates to cause irreparable damage to businesses.
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10x Research notes that a 50 basis point rate cut on September 18, 2024 could signal a sense of unease about the economy. It could also unintentionally convey that the Fed believes it is too late to manage the crisis. approaching economic crisis, forcing investors to move away from risky assets such as stocks and cryptocurrencies.
For the uninitiated, a basis point represents one-hundredth of a percentage point. Central banks around the world typically raise or lower interest rates by 25 basis points or multiples, depending on the urgency. Notably, there were several instances in 2022 where the Fed raised interest rates by 50 or even 75 basis points to address inflation.
In a note shared with clients today, Markus Thielen, founder of 10x Research, said:
While a 50 basis point cut by the Fed could signal deeper concerns in the markets, the Fed’s primary focus will be on mitigating economic risks rather than managing market reactions.
Adding:
The probability of a 50 basis point cut is only 29%, which is at odds with our view and the prevailing consensus. There are growing voices claiming that the Fed is behind schedule, having failed to detect signs of weakness in the labor market after being caught off guard in July.
It is critical that the Federal Reserve walks the fine line
Macroeconomic operator Craig Shapiro echoed 10x Research’s findings in a post on X say that despite market pressure on the Fed to “cut rates further and faster,” it should not give in and start with a 50 basis point cut.
Shapiro added that markets are addicted to liquidity and in the absence of it, they “revolt, sell and find the lowest strike level” that forces the Fed to accelerate rate cuts and provide more liquidity. Shapiro says risk assets will lose value until the Fed capitulates and gives the market what it wants.
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On the contrary, other analysts think that Bitcoin could start another rally in early October 2024. At the time of writing, BTC is trading at $55,296, with a total market cap of over $1.09 trillion, according to CoinGecko.
Featured image from Unsplash.com, chart from TradingView.com
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