The Federal Reserve announced at 2 a.m. Beijing time on the 19th that it would cut the benchmark interest rate by 0.5%, launching the first rate cut since 2020. The cryptocurrency market then started to rise, and Bitcoin briefly broke through $61,320 before quickly falling. However, after regaining its footing at $60,000, Bitcoin started a wave of rapid gains after 6 a.m. today, rising to a high of $62,555. As of the time of writing, the price was $62,687, an increase of nearly 4.12% in the past 24 hours, setting a record high price since the end of August.
Is a rate cut really good for cryptocurrencies?
Generally speaking, interest rate cuts will be beneficial to safe-haven assets. As time goes by or interest rates continue to fall, market liquidity will flow into gold and cryptocurrencies. However, looking back at history, after the Federal Reserve launched its first interest rate cut in many years in September 2019, Bitcoin did not rise in the short term, but fell 13.54% that month, from $10,000 to around $8,300, because the interest rate cut was initiated to save the economic recession.
The figure below is a trend chart of the US S&P 500 index and the US benchmark interest rate since 1980. We can see that during the COVID-19 pandemic in 2020, the financial tsunami in 2008, and the Internet bubble in 2000, the index fell synchronously with the interest rate.
The reason for such performance is that the Federal Reserve started to cut interest rates at that time. There was a more serious economic recession problem, which forced the Federal Reserve to loosen its money supply. However, this is not good news for the investment market in the long run.
What is the reason for the Fed’s rate cut this time?
Next, follow me to understand the reasons why the Fed cut interest rates by 2 basis points. Half an hour after the latest interest rate decision was announced, Fed Chairman Powell held a press conference on monetary policy. Powell emphasized in the press conference: "This is a precautionary measure aimed at maintaining a healthy economy and labor market. It does not mean that a recession is imminent or that the job market may collapse." This has reduced market concerns about a recession and increased the possibility of a soft landing.
According to the latest interest rate dot plot of the Federal Reserve, the interest rate will be cut by another 2 basis points in the last two meetings in November and December this year. It may be a 1 basis point cut in each of the two meetings, or there may be no cut in one of the two meetings and a direct 2 basis point cut in the other. (This sentence is a bit nonsense)
At the same time, as can be seen from the chart, there will be four more interest rate cuts in 2025 and two in 2026, which means that the end point of the interest rate cut may fall in the range of 2.75%-3.0%, although Bao pointed out that future interest rate levels are unlikely to return to the ultra-low level before the epidemic.
Bitcoin daily chart
According to the daily chart of Bitcoin, the price of Bitcoin shows signs of breaking through the upper track. If the price effectively breaks through and stabilizes the upper track, the price of Bitcoin will have room for further increase. If it encounters resistance and cannot break through the upper track, it may pull back to continue looking for opportunities. The DIF line and DEA line in the MACD indicator form a golden cross above the 0 axis, indicating that the current market bullish sentiment is strong. The three KDJ line values are all above 80 in the overbought area. If the J line value shows signs of turning downward, it means that the price may pull back. The RSI value is 73, which is also in the overbought area, and it also verifies the strong market sentiment, but we need to be wary of the risk of short-term resistance and pullback.
Bitcoin 4-hour chart
According to the Bitcoin 4H chart, the price is near the upper Bollinger Band, and the price has briefly broken through the upper band before, which shows that Bitcoin is in an upward trend. The DIF and DEA in MACD are running above the 0 axis, showing a strong bullish trend. The MACD red bar chart is also gradually growing, further indicating the strong bullish trend. The KDJ three-line value is higher than 80 and is in the overbought area. There may be pressure for a callback in the short term. If a death cross is formed at a high level, the callback depth will be lower. The RSI value of 78 also shows that it is currently in the overbought area, and it is also necessary to be vigilant about the risk of encountering resistance and callback.
To sum up, the following suggestions are given for reference
If Bitcoin falls back to 62,000, go long with a light position, and if it falls to 61,600, go long with an additional position. The target is 63,300-64,000, and the defense is 61,400.
Writing time: (2024-09-19, 19:40)
(Text-Daxian Talks about Coins)
