Bitcoin (BTC) has experienced a significant decline, dropping by 2.7% over the past 24 hours. This downturn comes as the US Federal Reserve (Fed) appears ready to commence its anticipated rate-cut cycle this week.
Why Did Bitcoin Decline Ahead Of Rate Cuts?
Over the weekend, Bitcoin hovered around the $60,000 mark before experiencing a 2.7% dip ahead of the expected rate cuts by the Fed. This price movement aligns with predictions made by Arthur Hayes, the former CEO of the BitMEX exchange.
If the Fed initiates rate cuts this week, it will mark the first reduction in four years, aimed at stimulating the economy amid easing inflation. Data from Polymarkets shows a 57% probability of a 50 basis points (bps) rate cut, while a 25 bps cut holds a 42% chance.
Since the unprecedented money printing during the COVID-19 pandemic in 2020, the Fed has grappled with surging inflation driven by supply-chain issues and currency debasement. This led to a series of rate hikes beginning in March 2022, with the most recent hike occurring in July 2023.
Typically, rate cuts are seen as bullish for the market as they reduce borrowing costs, encouraging businesses to take risks and expand. This often results in fresh monetary stimulus flowing into risk-on assets like stocks and cryptocurrencies, pushing their prices higher.
Crucial Factors Influencing the Impact of Rate Cuts
However, this time around, the expected positive effect of rate cuts on risk-on assets might not materialize. Several factors contribute to this uncertainty:
- Economic Uncertainty: Rate cuts during uncertain economic times and high unemployment may signal to investors that the Fed is in damage-control mode, indicating a lack of confidence in the economy’s health.
- Buy the Rumor, Sell the News: Investors often drive up prices in anticipation of easier monetary conditions. As the rate cuts approach, these investors might sell off their assets to book profits, causing a price decline before the official rate cut.
- Inflation Concerns: Even though the headline Consumer Price Index (CPI) for August 2024 was lower than expected, core CPI was slightly higher, suggesting that inflation remains a challenge.
Can US Presidential Elections Ignite Another Bullish Momentum?
While the anticipation of rate cuts may negatively impact Bitcoin in the short term, the upcoming US Presidential Elections could play a crucial role in determining the future price trajectory of digital assets.
Republican candidate and former President Donald Trump has expressed his support for the cryptocurrency industry multiple times. A recent report by Bernstein suggests that BTC could surge to as high as $90,000 in Q4 2024 if Trump wins the election.
Conversely, a victory for Kamala Harris could see Bitcoin testing lower price levels, potentially dropping to around $30,000. As of now, Bitcoin is trading at $58,498, reflecting a 2.7% decline over the past 24 hours.
Conclusion
Bitcoin’s recent price decline ahead of the anticipated rate cuts by the US Federal Reserve underscores the complex dynamics at play in the cryptocurrency market. While rate cuts could potentially stimulate the market, lingering economic uncertainties and inflation concerns may dampen the expected positive effects. Additionally, the outcome of the US Presidential Elections in 2024 could further impact Bitcoin’s price trajectory, making it a critical event for investors to watch closely.
