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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 warnings.
An interest rate cut of 50 BPS could scare the market
After it happened started Having already raised rates in March 2022 to curb rampant inflation due to COVID-related supply chain bottlenecks and money printing, the Fed is now poised to cut rates to stimulate the economy. However, there is a possibility that the Fed, by initiating a 50 basis point rate cut, will sound the alarm on risky assets like Bitcoin.
Data released September 6, 2024 from the Bureau of Labor Statistics declared that although unemployment fell slightly, the US economy generated fewer jobs than expected. This has 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.
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10x Research notes that a 50 basis point rate cut on September 18, 2024 could signal unease about the economy. It could also inadvertently convey that the Fed believes it is too late to manage the crisis menacing economic downturn, forcing investors to turn away from risky assets such as stocks and cryptocurrencies.
For the uninitiated, one basis point represents 1/100th of a percentage point. Global central banks typically raise or lower interest rates by 25 basis points or multiples, depending on the urgency. Notably, in 2022 there were several instances in which the Fed raised rates by 50 or even 75 basis points to tackle inflation.
In a note shared with clients today, Markus Thielen, founder of 10x Research, stated:
While a 50 basis point cut by the Fed could signal deeper concerns for markets, the Fed’s primary focus will be on mitigating economic risks rather than managing market reactions.
Add:
The probability of a 50 basis point cut is only 29%, which contradicts our view and the prevailing consensus. The chorus is growing louder that the Fed is behind the curve, having missed signs of weakness in the labor market after being caught off guard in July.
Crucial for the Fed to walk the fine line
Macro trader Craig Shapiro echoed 10x Research’s findings in a post on
Shapiro added that markets are addicted to liquidity, and in the absence of it, “revolt, sell off and find a lower put strike level” that forces the Fed to accelerate rate cuts and provide more liquidity. Shapiro argues that risky assets will fall in value until the Fed capitulates and gives the market what it wants.
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Other analysts, on the other hand think that Bitcoin could start a new rally around 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 to CoinGecko.
Featured image from Unsplash.com, chart from TradingView.com
