Bitcoin surges past $62K following FOMC’s 50bp rate cut

Bitcoin surpassed the $62,000 mark following the US Federal Reserve’s (Fed) decision to lower borrowing rates for the first time in four years.

The US Federal Reserve (Fed) lowered the benchmark federal funds rate by 50 basis points to 4.75-5% on September 18, ending the aggressive rate hike cycle that marked the past year.

In its latest press release, the Central Bank stated that its confidence in achieving sustainable inflation close to the 2% target has increased, and that the risks to employment and inflation targets are now more balanced.

The rate cut is the first since the COVID-19 pandemic disrupted the global economy four years ago. The move to ease monetary policy has spurred demand for risk assets, as is often the case with low interest rates, sending Bitcoin into an uptrend.

Bitcoin Price Rises in Response to Fed Rate Cuts

Many analysts believed that interest rate cuts were already factored into the pricing of riskier assets like Bitcoin. However, figures like Arthur Hayes argued that such moves by the US Federal Reserve could ultimately hurt the market, but he was speaking from a long-term perspective. In contrast, the short-term reaction has seen a positive impact on Bitcoin’s price.

Before the official announcement, Bitcoin had climbed from $57,600 to $60,000. Following the Fed’s decision to implement a 50 basis point cut, Bitcoin experienced significant volatility, with its price fluctuating up and down several times in the hours immediately following the announcement.

At the time of writing, Bitcoin (BTC) was calming down and trading at $61,969, reflecting a 2.8% increase, according to data from crypto.news. The crypto asset’s daily trading volume increased by 17% to hover around $48.2 billion, while its market value was $1.22 trillion.

Liquidations have reached $200 million per day, with the majority coming from short positions. Bitcoin is at the forefront with $75 million in liquidated positions, followed by Ethereum with $35 million.

According to data from Alternative, Bitcoin’s fear and greed index has moved from fear to neutral.

The Fed’s decision comes after Chairman Jerome Powell signaled at a Jackson Hole symposium last month that a policy change was needed amid falling inflation and rising unemployment.

Market sentiment was divided ahead of Wednesday’s decision, with investors split on whether the Fed would implement a 25 basis point cut or a larger 50 basis point cut. The market had priced in a 40% chance of a smaller cut and a 60% chance of a larger 50 basis point cut eventually happening, according to the CME FedWatch Tool.

Stocks fall, gold peaks

The rate cut also increased volatility in the precious metals market, with gold soaring from $2,550 an ounce to a record $2,600, then falling back to $2,545 before finally settling at $2,567.

Similarly, the U.S. stock market saw initial gains but then fell slightly. The S&P 500 opened the day at 5,641, peaked near 5,680 but eventually closed at 5,618. The Nasdaq Composite followed a similar pattern, opening at 17,663, rising above 17,800 and closing at 17,573. The Dow Jones Industrial Average saw less volatility but still closed the day with a small loss.

While it’s too early to draw general conclusions, the first 12 hours after the rate cut suggest that riskier assets like cryptocurrencies initially benefited from the Fed’s decision. However, only time will tell whether this is a positive trend or whether Hayes’ long-term pessimistic forecast is correct.