As the crypto community eagerly awaits the Federal Reserve’s rate cut announcement on September 18, all eyes are on Bitcoin (BTC) and the potential impact on the broader financial landscape. This marks the first central bank rate cut since the Fed reduced its key rate to near zero in March 2020 due to the COVID-19 pandemic.
Could a 50bps Cut Trigger a Bitcoin Bull Run?
Currently, markets are pricing in a 59% chance of a half-percentage-point cut and a 41% chance of a quarter-point cut, according to CME Group’s FedWatch tool. There’s strong sentiment that by the end of 2024, the Fed could implement up to 100 basis points in cuts, with nearly 60% odds of a 125 basis point reduction. This indicates that investors are anticipating one or two substantial cuts in the remaining Fed meetings this year, starting with this week’s announcement.
The possible effects of a 50 basis point cut have sparked lively debate within the crypto industry. Market expert Crypto Rover believes such a cut could ignite a bull run for Bitcoin, suggesting it could create “super bullish” conditions. Similarly, analyst Lark Davis recalls past surges in Bitcoin prices following previous rate cuts, predicting significant price increases over the next 6 to 12 months if history repeats itself.
Optimism vs. Historical Caution in the Crypto Market
While many express optimism about the potential for a rally, others urge caution. EmperorBTC anticipates an initial market pump following the rate cut, driven by cheaper borrowing costs. However, they warn that profit-taking by short-term holders might lead to a market dump, creating a “sell the news” scenario that could leave some investors disappointed before the market stabilizes.
Technical analyst Justin Bennett takes a more cautious approach, drawing parallels to the market behavior during the Fed’s rate cuts in 2007, when the Nasdaq 100 Index retraced significantly after initial cuts. This historical perspective raises questions about the overly optimistic projections shared by some for the digital asset market.
Additionally, crypto strategist Doctor Profit notes the divided sentiment in the market regarding the rate cut, with equal chances of a 0.25% or 0.50% reduction. He leans toward a larger cut, warning that inaction could lead to turmoil reminiscent of “Blood Monday” on August 5, when Bitcoin sharply declined to $48,900.
Despite mixed sentiments, Bitcoin has seen a jump from around $57,000 on Monday to approximately $61,000, marking a nearly 6% surge in just a few hours in anticipation of the upcoming announcement.
Image from DALL-E, chart from TradingView.com
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