Why Bitcoin Price Jolts After Fed’s First Interest Cut in 4 Years

Bitcoin price hit $62K after Fed’s first rate cut in 4 years since it promotes borrowing and spending. But what’s next for BTC? Rally? Crash?

Highlights

• Bitcoin price shot up to $62,000 after the Federal Reserve cut interest rates by 50 basis points (0.5%) for the first time in four years, dropping the target rate to 4.75%-5.00%.
• BTC currently trades just below $62,000 after rallying nearly 16%  since the September 6 bottom.
• Bank of Japan’s interest rate decision will be key in determining the directional bias of the financial markets, including BTC.

After the September 18 FOMC meeting, the Fed cut interest rates for the first time in four years. As a result of the 50-basis point rate cut, Bitcoin price hit $62,000 in the late New York session. Let’s understand why this happened. 

Here’s Why Bitcoin price Jolts After Fed’s Interest rate cut?

For the past four years the target rate was in the 500 to 525 range, but after Wednesday’s rate cut, it has dropped to 475 to 500 range. Furthermore, there are talks of another 50 bps rate cut by the end of 2024. 

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A drop in interest rates by 50 bps means it is that much cheaper for investors to borrow. So, a decline in the rates would promote borrowing and spending, which is bullish for risk-on assets like cryptocurrencies or stocks. 

But the markets do not always wait for the event, many investors anticipate the outcome and prepare ahead. As a result, BTC price saw a 16% rally since the September 6 bottom. The 50 bps rate cut 

Additionally, historical data shows that rate cuts are bullish for BTC. 

1. The July 2019 rate cuts saw Bitcoin price rise ~30% in the next two months.
2. The Fed called for an emergency rate cut in March 2020 due to the COVID-19 pandemic, resulting in a 50% rally in BTC within two months.

Will BTC Continue 2023 Bull Run? 

Well, the Fed cut interest rates by 50bps, does that mean Bitcoin price will rally? Will the bull run continue? Not really. There are multiple key factors that affect BTC.

1. Global economic conditions
2. Inflation expectations
3. Central bank policies
4. Regulatory environment
5. Institutional investment
6. Market sentiment

One event that could disrupt the ongoing bullish outlook is Japan’s interest rate decision on Friday. In July, when the Bank of Japan (BOJ) raised interest rates by 25 bps, it caused a panic closing of the YEN-USD carry trades, leading to a financial market meltdown. The central bank’s Kazuo Ueda confirmed that there wouldn’t be any imminent rate hikes, which resulted in recovery of the financial markets. As a result, market participants are closely watching this event to get a read on Bitcoin’s directional bias. 

Regardless, investors expect Bitcoin price forecast to send BTC beyond $65,000 and retest the $70,000 psychological level.

By Akash Girimath