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Large Fed rate cut may increase Bitcoin market risks

GrafaGrafa2024/09/09 15:25
By:Liezl Gambe

The Federal Reserve's potential interest rate cut, particularly a 50 basis point (bps) reduction, could pose challenges for Bitcoin (CRYPTO:BTC). 

While a cut generally supports risk assets like cryptocurrencies, a significant reduction might signal economic concerns, causing investors to retreat from such assets. 

Traditionally, the Federal Reserve opts for smaller rate cuts, typically around 25 bps. 

However, according to Markus Thielen, founder of 10X Research, the possibility of a 50 bps cut has gained traction recently, especially after weaker economic indicators like disappointing job reports. 

Thielen warned that such a large cut could be seen as a “sign of urgency” and might lead to a decline in Bitcoin, as investors could move toward safer assets during economic uncertainty. 

He stated, "While a 50 basis point cut by the Fed might signal deeper concerns to the markets, the Fed’s primary focus will be mitigating economic risks rather than managing market reactions." 

The Chicago Mercantile Exchange’s (CME) FedWatch tool shows a 25% chance of a 50 bps rate cut, sparking speculation about its impact on the market. 

In contrast, a 25 bps cut might have a more positive effect on Bitcoin, as it would likely be perceived as a manageable adjustment that supports risk assets. 

Mati Greenspan, CEO of Quantum Economics, also highlighted the potential market impact, saying, “A 25 bps cut might support Bitcoin’s price, but a 50 bps cut could have the opposite effect." 

He noted that such a drastic move could be seen as an "act of desperation," causing a negative reaction in the market. 

Greenspan emphasised, "This is precisely why such a move is fairly unlikely." 

According to him, Bitcoin’s recent price rise has been partly driven by expectations of modest rate cuts. 

At the time of reporting, the Bitcoin (BTC) price was $55,496.40.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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