Interest rate cut on horizon: Will it be a boost to Bitcoin?
The US Federal Reserve will meet on July 30 and July 31 to decide on interest rates. Bitcoin hit its highest price level after mid-June, and a potential rate cut could make it rise further. Analysts expect the FOMC to either undertake a surprise rate cut now or wait until September.
The Federal Open Market Committee may likely keep its main interest rate at 5.25-5.5% at the end of July 31. In this case, analysts believe that the Fed will cut rates by 0.25% in September. However, the first-rate cut of 2024 could also come as soon as this week, as some analysts note that the inflationary rise of Q1 was a mere seasonal adjustment.
FOMC could cut interest rates as inflation lowers
Crypto journalist Colin Wu cited CME data, noting that there is a 96% chance the rate will stay the same. Contrarily, he notes that there is an 85.8% chance of a 0.25% rate cut in September. Roger Ferguson, former Fed Vice Chair, agreed, telling CNBC, “Count me in the camp of many that September is likely the first move.”
Chief Market Strategist at Creative Planning, Charlie Bilello, is betting on a hold on July 31, 2024, followed by a quarter cut on September 18. According to the market strategist, further cuts might be announced in November to bring the rate to 4.75-5.00%.
Market expectations for Fed Funds Rate:
-July 31, 2024: Hold
-Sep 18, 2024: 25 bps cut to 5.00-5.25%
-Nov 7, 2024: 25 bps cut to 4.75-5.00%
-Dec 18, 2024: 25 bps cut to 4.50-4.75%
-Jan 25, 2025: Hold
-Mar 19, 2025: 25 bps cut to 4.25-4.50%https://t.co/l5IYmkf6Ih pic.twitter.com/pKqOKY6dPe— Charlie Bilello (@charliebilello) July 25, 2024
Notably, the interest rate stood at 5.25% at this time last year. Bilello sees rates coming down to 4.50-4.75% later in December. In addition, he projects another brief hold in January 2025, with a final cut likely to be announced in March that will bring the interest rate in the range of 4.25-4.50%.
“The Fed is moving closer to a rate cut, and its communications this week should reflect that,” Brian Sack, a former official with the New York Fed’s Markets Group told the Financial Times. The rate cut will matter for Bitcoin investors as they will look for other places to invest their money.
Bitcoin price rises after a month of weakness
Bitcoin’s price has been on the rise in July, partly because of hopes for lower interest rates. Another reason is Donald Trump’s BTC endorsement ahead of the US Elections due in November as the top crypto by market cap closes on $70K. This follows a price weakness in mid-June and early July when the price dipped below the crucial support of $55K.
Bitfinex analysts recently noted that the past weeks have seen a rapid decrease in the Bitcoin Exchange Reserve. They said, “A decline in exchange reserves typically indicates that investors are withdrawing their holdings for long-term storage rather than selling.” The analysts explain that large investors are buying the dip and moving their assets off exchanges for accumulation.
They also suggest a potential supply squeeze, which will be a bullish indicator in the coming months. At the time of writing, 93% of Bitcoin holders are making money at the current price, according to data from IntoTheBlock. If the Fed hints at cutting rates this week, it could give Bitcoin’s price another boost.
Peter Berezin, Chief Global Strategist and Director of Research at BCA Research says, “In the past, the first Fed rate cut was a reliable sign that a recession was about to start.” This aligns with bullish price targets by analysts from firms like Standard Chartered Bank who maintain that BTC could reach $100,000 in 2024.
While Federal Reserve interest rate cuts lined up later in the year can likely create a favorable environment for Bitcoin price appreciation, supply squeeze, and broader economic trends may also impact its price.
