At 2 a.m. today (September 19), Powell announced that the benchmark interest rate would be cut by 50 basis points to a range of 4.75% – 5.0%, marking the start of a loose monetary policy cycle in the United States.
In addition to announcing the first rate cut in more than four years, the latest FOMC forecasts show that the Fed will cut rates twice more in 2024, and the central bank is expected to cut interest rates by a total of 100 basis points this year. Interest rates are expected to fall further in 2025, with a forecast value of 3.4%, and long-term interest rates will bottom out at 2.9%. This usually helps stimulate the market because most investors tend to allocate risky assets under the prospect of a return to loose monetary policy.
Bitcoin continued to fluctuate in a narrow range near the $60,000 level yesterday (18th) until the Federal Reserve announced a rate cut at 2 a.m., then it went up and down within three hours, briefly breaking through $61,000 before quickly falling.
However, after regaining its footing at $60,000, Bitcoin started a rapid rise after six o'clock earlier. At the time of writing, it reached a high of $62,589, up more than 3% in the past 24 hours, setting the highest price since the end of August.
The decision to cut interest rates by 50 basis points, will volatility increase further?
The Fed met the market's demands by cutting interest rates by 50 basis points. Now that the market has priced in such a degree of easing, the next concern will be whether the market can continue to be optimistic about risk assets under the Fed's easing policy in the future.
It is said that a 50 basis point rate cut indicates that the fundamentals are not very good. In fact, the trading recession is a bit too large. It may not be possible to achieve a market like 312 even after half a year. Then through the monetary policy of the Federal Reserve and market expectations, it may not come after the bull market of Bitcoin is over... Let the violent bull fly for a while~
And given Bitcoin’s correlation with the U.S. stock market since the launch of the Bitcoin ETF, the performance of the S&P 500 in past rate-cutting cycles can serve as a useful indicator of what to expect next. Historically, recession cycles triggered by a 50 basis point rate cut have all begun against the backdrop of widespread concerns about macroeconomic weakness, which has led to a prolonged downturn in risk assets.
However, the magnitude of this rate cut may be different and can be seen as an additional measure taken by the Fed to strengthen the labor market. Overall, the 50 basis point rate cut has brought a short-term boost to the market, but the market's expectations for the future economic outlook of the United States are highly divided. Some investors are optimistic about a soft landing of the economy, while others are wary of inflation and geopolitical risks. Therefore, in the short term, market trends may be more complicated and volatile.
The Federal Reserve will continue to cut interest rates for several months!
This rate cut far exceeded the market's general forecast of 25 basis points, directly cutting interest rates by 50 basis points. Powell emphasized at the press conference that he did not think that the sharp rate cut indicated that the US economy was approaching a recession, nor that the job market was on the verge of collapse. The rate cut was more of a preventive action aimed at maintaining the "robust" status quo of the economy and the labor market.
After the dust settled, the market generally expected that interest rates would continue to be cut in November and December. It is expected that there will be another 70 basis points of interest rate cuts this year. The published dot plot suggests that there will be another 50 basis points of interest rate cuts this year. The market's general concern about the possibility of a US economic recession has become smaller, and the possibility of a soft landing is increasing. The interest rate cut will have a lasting positive effect on risky assets.
Although it may not be effective immediately, as time goes by and interest rate cuts continue, market liquidity will begin to flow out of bonds, banks, etc. and into stocks, cryptocurrencies and other markets.
In addition, the upcoming US presidential election in early November this year will also bring short-term shocks to the crypto market. After the results are officially announced, the OTC funds that are waiting and watching may begin to be continuously injected into the crypto market. The current spot market trading volume is still in a downturn, and the overall fluctuations remain around US$60 billion. Putting aside the short-term sudden fluctuations caused by special macro events, the market liquidity is still mediocre.
Bitcoin has increasingly become a macro asset that reflects overall economic trends. As liquidity continues to be injected into the market, the crypto market may be able to shake off the past haze.
Will Bitcoin Soar After a Rate Cut?
After the Fed cuts rates, more liquidity will flood into the market. The growth in liquidity could provide the impetus for Bitcoin to hit new highs this fall. They will increase the number of printing presses, significantly increasing the money supply. This will cause inflation, which can be a bad thing for certain types of businesses. But for an asset with a limited supply like Bitcoin, it will provide a light-speed ride!
The return of momentum behind a Bitcoin ETF could push Bitcoin higher as demand for the leading cryptocurrency by market cap grows. Bitcoin added $250 million in value in a recent day, its highest level in more than a month. The surge in demand helped Bitcoin’s price break through and stabilize at $62,000 in September.
At present, after experiencing a long period of volatile downward price fluctuations, the confidence of OTC funds has gradually recovered and they are still buying. It is worth mentioning that October is a strong month in history! In the past 9 years, Bitcoin has achieved strong positive returns from 2015 to 2023, except for October 2018 when it fell due to the bear market.
In the second half of 2023, Bitcoin has been rising since October, and the expected approval of the Bitcoin spot ETF has ushered in a bull market. And the fourth quarter after the halving event has also been bullish. If history repeats itself, it may bring amazing returns that most people can't imagine. The Fed's decision to start cutting interest rates is likely to be the first in a series of consecutive rate cuts.
Many expect this move to last until 2025. In a recent speech, Powell said he believes inflation has been overcome. However, there is still a long way to go to make up for the high interest rates of the past few years. As interest rates continue to fall, it will be important to track the behavior of Bitcoin. The interest rate cut cycle has begun, and the next market trend has been clear. It just takes time to brew. Don't miss the opportunity!
