Fed rate cut could push Bitcoin (BTC) to $45,000: Bitfinex analysts

With the US Federal Reserve (Fed) set to implement a new monetary policy in September, Bitfinex analysts warn that the agency’s decision could negatively impact the price of bitcoin.

According to a recent Bitfinex research report, the analyst team stated that BTC could face a drop of up to 20% if the Fed decides to cut interest rates. They noted that the expected rate cut could “significantly influence both short-term volatility and bitcoin’s long-term trajectory.”

Potential Effects of the Fed’s Rate Cut

Analysts noted that while bitcoin is often considered a hedge against traditional financial assets, the digital asset is still influenced by macroeconomic conditions.

According to the report, BTC had risen more than 32% since the beginning of August, mainly driven by traders anticipating favorable comments from the Fed. However, last week, Bitfinex analysts noted a change in market dynamics, with spot traders aggressively selling their BTC while futures and perpetual market watchers are buying.

Analysts predict that if the Fed implements a modest 25 basis point cut, the market would likely absorb the news much faster, leading to “long-term bitcoin price appreciation as liquidity increases and fears of recession are reduced”.

On the other hand, the implementation of a more aggressive cut of 50 basis points could temporarily increase the price of bitcoin by as much as 8%, but this increase would be quickly followed by a major correction due to recession concerns.

An example of the adverse effect of the Fed’s aggressive bitcoin rate cut was in 2019, when an adjustment of 50 basis points caused bitcoin to fall by 50% before stabilizing.

Bitfinex analysts, however, stressed that conditions are different in the current cycle. Bitcoin has undergone two halving events since 2019 and the global economy is not currently facing the challenges of a pandemic.

15-20% Drop for Bitcoin in September

Analysts speculate that bitcoin could face a 15-20% price drop after a rate cut. Historically, cycle peaks in percentage returns typically decline by 60-70% each time, in addition to a reduction in average bull market corrections.

Thus, they project the price of bitcoin to be around $60,000 before rate cuts, putting the potential bottom in the low $50,000s to mid $40,000s.

Analysts added that September’s historic volatility, particularly for bitcoin, could further affect market conditions. Since 2013, September has typically seen an average return of -4.78% for bitcoin and peak declines of at least 24.6% since 2014.

Despite September’s warnings, Bitfinex analysts remain bullish on bitcoin, adding that volatility presents traders with both risks and opportunities.

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