A long-awaited interest rate cut by the United States Federal Reserve could have an unexpected impact on Bitcoin, potentially driving its price down, according to analysts.
In a September 2nd report from Bitfinex, analysts warned that a US rate cut could present a “challenging time” for Bitcoin traders.
While a 25 basis point cut is seen as the more favorable outcome, possibly leading to “lead to long-term price appreciation for Bitcoin as liquidity increases and recession fears ease,” the report cautioned that a more aggressive cut could have the opposite effect.
A 50 basis point rate cut could potentially trigger a correction, pushing Bitcoin deeper into its recent slump as “recession concerns escalate.” The analysts added:
“If we were to speculate, we would caution to expect a 15-20 percent decline when rates are cut this month, with a bottom of $40-50k for BTC”
Recession concerns gained traction in early August when the Sahm Rule Recession Indicator, which tracks economic downturns, jumped to 0.53 from 0.43 following weak U.S. jobs data, signaling a warning of a looming recession.
As the September 18th Federal Open Market Committee (FOMC) meeting approaches, the majority of traders on Polymarket are betting on a rate cut by the U.S. Federal Reserve.
Data from the decentralized betting platform shows that 69% of traders expect a 25 basis point cut, reflecting a strong consensus around this outcome. Meanwhile, 27% anticipate a more substantial 50 basis point cut, while only 3% believe the rate will remain unchanged.
The current decline in inflation and a weakening job market are fueling expectations that the Federal Reserve may act to provide more economic support. These developments align with the Fed’s dual mandate to control inflation while promoting economic growth.
While most analysts agree on the likelihood of a 25 basis point cut, they also note that a more significant reduction could be considered if economic conditions deteriorate further.
Recently, at the Jackson Hole symposium, Fed Chair Jerome Powell said that the “time has come for” the US Federal Reserve to cut interest rates.
According to Investec economist Lottie Gosling, very weak data could make a 50 basis point rate cut more likely, while strong data might rule out a larger cut.
“Even though Powell refused to comment on whether the door could be open to a 50 basis point cut in September, we do suspect that a further clear deterioration in the labor market could steer the FOMC into more aggressive easing,” Gosling commented.
Bitfinex’s analysts backed up their claims by reiterating that September has historically been a “volatile month” for Bitcoin, and the anticipated Fed rate cut only adds another “layer of complexity, potentially exacerbating the market’s volatility.”
If Bitcoin were to see a 20% decline, it would reach $46,000, levels unseen since February 8th. This view is consistent with past analysis from 10x Research, which identified the low 40,000s zone as an optimal entry point for the next bull market.
However, not all analysts agree on the severity of the potential correction. Popular crypto analyst Moustache believes that the market bottom could be around $57,000, citing historical fractal patterns used to identify key support and resistance levels and potential trend reversals.
Bitcoin currently has significant support at $57,000. However, a possible move below would liquidate over $860 million worth of cumulative leveraged short positions, according to CoinGlass data.
Although Bitcoin price action may be bleak in the near term, Based on historical and technical patterns, a six-figure bitcoin Bitcoin is “still in play.”
Notably, popular trader Titan of Crypto pointed to the final quarter of this year as a potential breakout point, describing it as having “epic” potential for price action—a sentiment echoed by other analysts.
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