Urgent: Cryptocurrencies are under intense pressure from the Federal Reserve… and violent fluctuations are possible
BitVerge – The uncertainty over how much the U.S. central bank will cut interest rates at this week’s meeting has stalled bitcoin’s rally, with markets still divided over whether to cut rates by 25 basis points or 50 basis points.
The Federal Reserve is widely expected to announce a rate cut on Sept. 18, kicking off a so-called “easing cycle” that has historically supported riskier assets like bitcoin. However, traders are divided over the size of the expected cut, setting the stage for potentially significant volatility in financial markets after Wednesday’s rate decision.
Federal Reserve rate futures are currently signaling a 50% chance that the Fed will cut rates by 25 basis points to a range of 5%-5.25%. Meanwhile, markets are seeing a similar chance of a larger 50 basis point cut to a range of 4.7%-5%.
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Bullish Momentum Stalled
Bitcoin’s bullish momentum stalled after it surged from its recent lows of $52,530 to $58,700, due to uncertainty surrounding the rate cut. “Rarely do markets enter a Fed meeting with this much uncertainty (between 25bp and 50bp),” said Marc Chandler, chief market strategist at Bannockburn Global Forex and author of Understanding the Dollar.
“I think a 50bp rate cut would not be good for riskier assets, as it suggests the Fed is more concerned about the economy and seems to acknowledge that it should have cut rates in July,” Chandler added.
Many analysts have warned that a 50 basis point rate cut could signal panic, which could dampen demand for riskier assets, including cryptocurrencies.
The likelihood of a 50 basis point rate cut rose last week after The Wall Street Journal’s Nick Timmerius published an article suggesting that the size of the cut was being discussed.
Several Fed policymakers have also raised the possibility of a larger move, cheering risk markets.
“The market was expecting a 25 basis point cut before some information leaked through a suspicious article by Fed officials to put the 50 basis point option back on the table on Thursday,” Chandler said.
“The market took the bait and increased the odds of two half-point and one-quarter-point cuts in the remaining three meetings this year.”
He noted that traders should watch the Fed’s summary of economic and interest rate projections.
Crypto Market Under Fed Pressure
Bitcoin spent most of the weekend above $60,000 after positive U.S. data fueled its rally late Friday. U.S.-listed bitcoin exchange-traded funds (ETFs) saw net inflows of more than $263 million — the most since July 22 — while Ethereum (ETH) funds saw their second day of inflows since Aug. 28 at $1.5 million.
However, crypto markets retreated on Monday as Asian exchanges opened for trading ahead of a crucial week in which traders around the world expect the Federal Reserve to cut interest rates for the first time in more than four years.
Bullish bettors at the Bull Market are suggesting a 51% chance of a 50bps cut, a 48% chance of a 25bps cut, and a 2% chance of no change.
A shift to lower borrowing costs typically boosts positive sentiment among traders, as easier access to cash boosts growth in riskier sectors.
Ethereum (ETH) led the declines among major coins, falling 5.5% over the past 24 hours, its worst single-day decline since early August. Cardano (ADA) also fell 5%, Solana (SOL) lost 4%, and BNB was the best performer, losing 1.1%.
CKB/USD was among the few to make gains, jumping 10.5% in the past 24 hours, as positive sentiment continued after its listing on the Korean Upbit exchange, where traders tend to favor meme coins.
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