Bitrabo Editorial
The value of Bitcoin (BTC) fell by 2.7% in the last day as the US Federal Reserve (Fed) prepares to potentially begin its long-anticipated reduction in interest rates this week.
Reasons Behind Bitcoin’s Decline Before Rate Cuts
After maintaining a price around $60,000 for most of the weekend, Bitcoin experienced a 2.7% drop ahead of the Fed’s expected decision on interest rate cuts. This price movement aligns with insights from former BitMEX CEO, Arthur Hayes.
If the Fed proceeds with rate cuts this week, it would mark the first reduction in four years aimed at stimulating the economy amid easing inflation.
Polymarkets data suggests a 57% likelihood that the Fed will cut rates by 50 basis points (bps) and a 42% chance for a 25 bps cut as of the current moment.
Following the aggressive money printing in response to COVID-19 in 2020, the Fed faced significant challenges in curbing soaring inflation driven by supply chain issues and currency devaluation. This led to a rate-hiking period starting in March 2022, with the last increase occurring in July 2023.
Rate cuts are generally viewed positively as they reduce borrowing costs for businesses, encouraging them to take risks and grow. This, in turn, often benefits riskier assets like stocks and cryptocurrencies, spurring price increases.
However, this time experts suggest that rate cuts might not trigger the anticipated positive impact on risk assets. There are several reasons behind this outlook.
For example, reducing rates during a period of economic uncertainty and high unemployment might signal to investors that the Fed is taking emergency measures, indicating a lack of confidence in the economy’s resilience against a possible recession.
Additionally, rate cuts could contribute to a ‘buy the rumor, sell the news’ scenario. Investors often drive up asset prices in anticipation of easier monetary conditions, but they might sell off just before the actual announcement to secure profits, leading to price drops.
Moreover, declining prices for risk assets ahead of expected rate cuts could also be driven by concerns over persistent inflation. Despite August 2024’s Consumer Price Index (CPI) showing a lower-than-expected headline figure, the core CPI was slightly above forecasts, suggesting that inflation remains a challenge.
Upcoming US Presidential Elections: Could They Boost Bitcoin?
While concerns about rate cuts might negatively impact Bitcoin and other cryptocurrencies in the short term, the upcoming US Presidential Elections could significantly influence the future of digital asset prices.
Former President Donald Trump, a Republican candidate, has expressed his support for the cryptocurrency sector. A recent Bernstein report indicated that Bitcoin might soar to $90,000 in Q4 2024 if Trump wins the election.
Conversely, a victory for Kamala Harris could potentially drive Bitcoin prices down to $30,000. Currently, Bitcoin is trading at $58,498, having declined by 2.7% over the last 24 hours.