Fed rate decision may briefly boost bitcoin, but recession fears could lead to correction: analysts
This monthʼs U.S. Federal Reserve interest rate decision could significantly influence both bitcoin's short-term volatility and long-term trajectory, according to analysts.
"A 25 basis point cut is likely to signal the beginning of a typical easing cycle, while a more aggressive 50 basis point cut might cause an immediate price spike for bitcoin, but this could be followed by a correction as recession concerns escalate," Bitfinex analysts told The Block.
Economists are currently concerned by several recessionary indicators — including the Sahm Rule, which links rising unemployment to increased recession risks — as job losses typically lead to reduced spending and slower growth.
Additionally, the inverted U.S. Treasuries yield curve suggests a 50% chance of a recession in the next 12 months, according to analysis by the New York Federal Reserve. If recessionary signals affect risk assets, Bitfinex analysts predict that bitcoin could decline by up to 20% from its current value in the weeks following the U.S. central bank's interest rate decision on Sept. 18, potentially finding a bottom between $40,000 and $50,000.
This forecast for the coming weeks aligns with observations by BRN analyst Valentin Fournier, who said that September could see major cryptocurrencies drop by an average of 4.35%. "A Federal Reserve pivot on interest rates usually leads to a 'sell the news' event and the expected cut on Sept. 18 could lead to a dip toward the lower $50,000s," Fournier told The Block.
Bitfinex analysts also pointed to historical trends that show the stock market’s initial reaction to rate cuts has been a brief sell-off, with data showing declines of up to 20% in the first month during the last nine cutting cycles. "Bitcoin BTC +1.13% 's increasing correlation with traditional risk assets like the SP 500 suggests its price movements will remain closely tied to global macroeconomic conditions," they added.
Recessionary indicators are fostering investor caution
Bitfinex analysts described key recessionary indicators that may prompt investors to take a more cautious approach to risk assets. They emphasized that current macroeconomic conditions have introduced uncertainty for traders. For instance, July’s U.S. housing market data showed pending home sales at a record low, with declining mortgage rates failing to stimulate activity.
Meanwhile, the People’s Bank of China has enacted targeted liquidity measures to support China’s slowing growth, which Bitfinex noted could have ripple effects across global markets and impact digital assets like bitcoin. China’s economic slowdown is particularly worrisome for commodities and emerging markets, the analysts added.
Ahead of the Federal Open Market Committee meeting in mid-September, the CME FedWatch tool shows interest rate traders forecasting a 69% chance of a 25-basis-point cut and a 31% chance of a 50-basis-point cut later this month.
