With the FOMC meeting approaching, could a rate cut provide the liquidity boost Bitcoin needs to rally, or will a smaller cut cause market jitters?
All eyes on FOMC meeting
The Federal Open Market Committee is set to hold another crucial meeting on September 18, and all eyes are on what the Fed might do next.
US economy Added 142,000 jobs were added in August, up 28,000 from July, giving a slight boost to confidence. However, not everything is rosy — the revisions were down 89,000 from the previous two months, suggesting the labor market may not be as strong as it seemed.
Private sector employment increased by a modest 118,000 jobs, while the unemployment rate fell slightly to 4.2%, driven mainly by the end of temporary layoffs.
on economic inflation In contrast, there is a clearer but somewhat confusing picture. Consumer price inflation fell in August to its lowest level since February 2021, reaching 2.5% on a 12-month basis, which was slightly below expectations of 2.6%.
However, core inflation – excluding the volatile food and energy sectors – rose 0.3% during the month, which was higher than expected.
This leaves the Fed in a difficult position: while headline inflation is slowing, core inflation remains a thorn in its side, holding steady at 3.2%.
Now, what will the Fed do next? While many are expecting a quarter-point rate cut, a half-point rate cut is possible. So where might the crypto markets go from here? Let’s break down the possible scenarios and what experts think will happen next.
How much will the Fed cut interest rates?
Historically, interest rate cuts have boosted risk assets, and many are hoping the same will happen this time around, especially for crypto assets like Bitcoin (BTC). But the amount of the Fed cuts will have a big impact on how markets react.
Currently, traders are divided between two possibilities: a 25 basis point cut or a more aggressive 50 basis point cut.
According to CME Watch Tool On September 16, there is a 41% chance that the Fed will cut interest rates by 25 basis points, bringing rates down to a range of 5%-5.25%. However, there is also a 59% chance of a larger 50 basis point cut, bringing rates down to a range of 4.7%-5%.
As is Analysts A 50 basis point rate cut could actually panic markets rather than boost them, according to a report from 10x Research. Some believe such a large move could signal that the Fed is concerned about the economy, which could make investors wary of holding riskier assets like Bitcoin.
In this case, we may see a sell-off in cryptocurrencies and stocks as traders retreat, preparing for more economic troubles to come.
Ultimately, the crypto market’s reaction will depend on what traders have already priced in. Following the decision, all eyes will be on Fed Chair Jerome Powell’s comments as investors look for clues on what might happen next.
What’s next for Bitcoin?
As the cryptocurrency market awaits the next interest rate cut decision from the Federal Reserve, Bitcoin has struggled to break through a key resistance level.
Since early August, Bitcoin has repeatedly failed to close above $62,000, and by September 16, it was down more than 2%, hovering around $58,600.
According to popular top trader Craig Shapiro, this price action is closely linked to the market’s demand for liquidity, which he calls “PALM” or “Perpetually Accelerating Liquidity Machine.”
Shapiro explains that the market acts like a “problematic child,” selling risky assets when it doesn’t get enough liquidity from the Fed.
Shapiro believes the Fed needs to cut interest rates by 50 basis points to meet the market’s need for liquidity. He warns that a smaller 25 basis point cut could disappoint investors, leading to further corrections in bitcoin and other risky assets.
Essentially, the market is looking for the “Fed strike price” — the level at which the Fed will intervene to prevent a deeper decline.
But a larger 50 basis point rate cut, despite addressing immediate liquidity needs, could signal deeper economic concerns. Historically, aggressive cuts have signaled that central banks are concerned about slowing growth, which can lead to sell-offs rather than rallies.
Herein lies the paradox: while more liquidity may push asset prices higher, too much of it too quickly may have the opposite effect.
But there is hope for Bitcoin’s rise. According to cryptocurrency analyst Miles Deutscher, the fourth quarter was the strongest quarter on record for both the S&P 500 and Bitcoin.
Since 1945, the S&P 500 has averaged a 3.8% gain in the fourth quarter and has been up 77% of the time. Bitcoin has seen a notable return of 88.84% on average in the fourth quarter, and in previous halving years like 2016 and 2020, it has seen gains of 58.17% and 168.02%, respectively.
While Q3 was Bitcoin’s worst-performing quarter on record, Q4 could offer a rebound — especially if the Fed’s rate cut is in line with expectations.
However, volatility remains a risk if Fed action is less than expected or if macroeconomic conditions worsen.
What lies ahead?
After the Fed decision on September 18, the real focus will be on Fed Chairman Powell’s comments. His expectations for future rate cuts could set the stage for a strong Q4 rally or keep markets on edge.
If Powell hints at more rate cuts in the future, Bitcoin and other risk assets could get the fuel they need to rally. But if he plays it safe, we could see more market jitters.
Meanwhile, the US presidential election race in November adds another layer of complexity.
Republican candidate Donald Trump has publicly embraced cryptocurrencies, launching his own venture, World Liberty Financial, along with other crypto-focused initiatives. His clear stance could appeal to cryptocurrency advocates seeking a favorable regulatory environment.
On the other hand, Democratic vice presidential candidate Kamala Harris has remained largely silent on cryptocurrencies, and her views on the issue remain unclear.
With both candidates representing very different approaches, the election could be a major turning point for the crypto market as investors weigh their options ahead of 2025.