As an analyst with over two decades of experience navigating the tumultuous world of financial markets, I have seen my fair share of surprises and shifts that can send even the most seasoned investors scrambling to adjust their portfolios. Today’s news of the U.S. Federal Reserve’s rate cut, coming after four long years, is no exception.
The price of Bitcoin surpassed $62,000 after the U.S. Federal Reserve announced a reduction in interest rates – this being the first such decrease in four years.
On September 18th, the U.S. Federal Reserve reduced its key interest rate (federal funds rate) by 0.5% to a range of 4.75% – 5%, marking the end of a series of significant rate increases that have characterized the past year.
In a recent statement, the central bank has shown greater assurance about reaching a steady inflation level close to the 2% goal, and they mentioned that the risks to their objectives related to both employment and inflation are currently more evenly distributed.
For the first time since the COVID-19 pandemic caused a worldwide economic disruption more than four years back, there’s been a decrease in this rate. This monetary policy adjustment has ignited interest in riskier investments, which is typical with reduced interest rates, causing Bitcoin to follow a bullish trajectory.
Bitcoin price goes up in response to Fed Rate Cuts
Several analysts hold the viewpoint that lower interest rates were already incorporated into the value of riskier assets such as bitcoin. On the other hand, individuals like Arthur Hayes have contested this notion, suggesting that actions taken by the U.S. Federal Reserve might negatively affect the market in the long run. Contrastingly, the immediate effect on Bitcoin’s price has been positive.
Prior to the formal declaration, Bitcoin had already ascended from $57,600 to $60,000. In the wake of the Federal Reserve’s decision to lower rates by 0.5%, Bitcoin saw considerable turbulence, with its value rising and falling repeatedly in the minutes following the announcement.
Currently, Bitcoin (BTC) is currently trading at $61,969, showing a 2.8% rise, as per data from crypto.news. Its daily trade volume surged by 17%, reaching approximately $48.2 billion, and its market cap is now valued at an impressive $1.22 trillion.
Daily liquidations are skyrocketing to around $200 million, and a large portion of this comes from traders holding short positions. Leading the charge is Bitcoin, which accounts for approximately $75 million in liquidated positions, while Ethereum follows closely behind with roughly $35 million in similar situations.
Per data from Alternative, Bitcoin’s fear and greed index has now shifted from fear to neutral.
Based on indications given by Chair Jerome Powell during the Jackson Hole symposium a month ago, suggesting a potential change in strategy due to decreasing inflation rates and increasing joblessness, the Fed made its recent decision.
Before the decision on Wednesday, opinions among traders were divided. Some believed the Federal Reserve would implement a quarter-point (25 basis points) reduction, while others anticipated a more significant half-percentage point (50 basis points) cut. According to the CME FedWatch Tool, there was a 40% likelihood of a smaller adjustment, with a 60% probability favoring the larger 50 basis points reduction. As it turned out, the larger reduction was indeed implemented.
Stocks dip, Gold peaks
The reduction in interest rates triggered increased fluctuations in the gold market, causing gold prices to climb from $2,550 an ounce to a peak record of $2,600, only to dip again to $2,545 and ultimately stabilize at $2,567.
Initially, the U.S. stock market showed growth but ended up with minor decreases. For instance, the S&P 500 started off at 5,641, reached nearly 5,680, but wound up closing at 5,618. The Nasdaq Composite had a similar journey, opening at 17,663, going over 17,800, and ending the day at 17,573. Meanwhile, the Dow Jones Industrial Average experienced less volatility but still ended with a slight loss.
Based on the first 12 hours following the rate cut, riskier assets such as cryptocurrencies seem to have gained from the Federal Reserve’s decision. Yet, it remains to be seen whether this is a lasting positive trend or if Hayes’ longer-term bearish prediction will ultimately prevail. Time will tell.
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2024-09-19 10:32