Bitcoin (BTC) price has taken a hit, dropping by 2.7% over the past 24 hours. This decline comes in anticipation of the US Federal Reserve’s (Fed) expected rate cuts on the horizon. The market is bracing itself for potential changes, raising questions if this is merely the calm before the storm.
Why Is Bitcoin Declining Ahead of Fed Rate Cuts?
BTC, which was hovering around the $60,000 mark over the weekend, saw a 2.7% drop as investors anticipate the Fed’s rate cuts. This movement aligns with predictions from Arthur Hayes, the former CEO of BitMEX exchange. Given the Fed’s anticipated action, which would mark the first rate cuts in four years amid signs of easing inflation, the market appears jittery.
Data from Polymarkets suggests a 57% probability of a 50 basis points (bps) cut, while there’s a 42% chance of a 25 bps reduction. Historically, rate cuts lower borrowing costs and encourage riskier investments, potentially boosting assets like cryptocurrencies.
However, this situation seems different. Many experts believe that rate cuts may not produce the expected bullish effect on risk-on assets. Several factors can explain this deviation.
Economic Uncertainty and Investment Sentiment
Rate cuts amid economic uncertainties and high unemployment can signal investors that the Fed is attempting to prevent a recession. For example, despite a lower headline Consumer Price Index (CPI) for August 2024, core CPI exceeded expectations, indicating that inflation control remains an ongoing challenge.
The scenario can also turn into a ‘buy the rumor, sell the news’ event. Investors speculate and drive up asset prices before anticipated monetary easing, only to sell off as the event nears, leading to a price drop before the actual rate cuts.
Could the US Presidential Elections Spark a Bullish Momentum?
Despite the current downturn, the upcoming US Presidential Elections could significantly impact Bitcoin and other cryptocurrencies. Former President Donald Trump, a vocal supporter of the crypto sector, has led to predictions from Bernstein suggesting that BTC could surge to $90,000 in Q4 2024 if he wins the election.
On the other hand, a victory for Kamala Harris could see Bitcoin testing lower limits, potentially plummeting to $30,000 according to some analysts. As of now, Bitcoin is trading at $58,498, reflecting a 2.7% drop within the last 24 hours. The market remains sensitive to both economic policies and political climates.
Featured Image from Unsplash.com, Chart from TradingView.com
Understanding these dynamics requires a keen eye on both Federal Reserve’s policies and political events, as both have significant ramifications for Bitcoin’s price movements. Stay informed to navigate these turbulent waters effectively.
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