Market watchers are closely anticipating the upcoming Federal Open Market Committee meeting, which could influence the short-term outlook for Bitcoin and other digital assets. One economist thinks it will bring some bad news for the investors.
Interest rate cuts, good or bad?
While the exact size of the rate cut isn’t yet confirmed, there is widespread expectation that the FOMC will choose either a 25-basis point reduction or a larger 50-basis point cut.
Steve Hanke, the renowned economist from Johns Hopkins University told that the FOMC’s decision could lead to a so-called ’sell-the-news’ event for riskier assets like Bitcoin or provide them with a boost.
In an interview Hanke explained that if a 25-basis-point cut will be announced, it might trigger a sell-off in the crypto market because investors have already factored this possibility into current prices. Simply put, it was already priced in.
Hanke noted that the market has absorbed the expectation of a 25-basis-point cut, meaning that when the announcement comes, the reaction could be less loud than anticipated, leading to a wave of selling among cryptocurrencies.
On the other hand, he mentioned that a 50-basis-point cut hasn’t been fully considered by the market, and such a surprise might actually lift prices.
Market conditions for Bitcoin, what’s next?
Inflation in the U.S. is beginning to ease, with Fed chair Jerome Powell stating last month that the time has come for rate cuts.
Interest rates now are between 5.25% and 5.50%, the highest level in 23 years. In the context of the FOMC, these rate points refer to changes in the federal funds rate, which the Fed adjusts to stimulate economic growth and manage inflation.
Lower rates, higher growth for risk assets
A reduction in interest rates could create a more favorable environment for cryptocurrencies.
Lower rates mean traditional savings accounts and fixed-income investments, like bonds, will yield less, which might push investors toward cryptocurrencies, because they are riskier, but also could provide better yield.
Yet, predicting how the market will react to a rate cut is pretty complicated.
The expected cut is one of the factors that contributed to Bitcoin’s rise earlier this year, leading to questions about whether this possibility has already been priced into the market.
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