Contrary to what many analysts believe, a rate cut by the Federal Reserve could cause panic and concern, leading to increased caution and potential disadvantages for Bitcoin and other investment assets.
The U.S. Federal Reserve appears ready to initiate the long-awaited interest rate cut. As a result, both enthusiasts and analysts are focused on September 18, when the Federal Open Market Committee (FOMC) will decide on the U.S. economy.
While many analysts believe the measure could positively impact markets, including cryptocurrencies, a report by CoinDesk warns it could also lead to a less favorable scenario, prompting investors to be cautious with capital allocated to risky assets.
The Flip Side of the Coin Behind the Potential Rate Cut
According to the report, the Fed is likely to start cutting interest rates on September 18, but the depth of the reduction remains uncertain. Most forecasts suggest a 0.25% cut, but some anticipate it could be 0.5% if the situation demands more substantial measures.
Regardless, rather than indicating a relaxed approach, the rate cut could raise economic fears, as it may be seen as an effort by the United States to combat economic slowdown and recession risks. If this scenario gains traction, investors may become more cautious with their capital and focus on safer assets.
In an analysis presented by CoinDesk, Markus Thielen, founder of 10x Research, noted that “a 50 basis point cut by the Fed could signal deeper concerns for markets. The Fed’s primary focus will be on mitigating economic risks rather than managing market reactions.”
In contrast, market trader Craig Shapiro dismissed the possibility of a 0.5% initial cut by the Fed, stating that the aim is not to cause market panic. He believes the Fed will implement the reduction gradually, based on the economy’s needs, to create the best scenario for financial markets.
“We are back in this zone. Risk assets will correct until the Fed capitulates and gives you what you want. We need to find the strike price of the Fed put option. But given the current state of the economy and with risk asset prices (equities, credit spreads, etc.) still elevated while economic data grows slowly, I fear significantly lower levels,” Shapiro said.
Bitcoin Still Not Rising
The analysis cited by CoinDesk comes amid Bitcoin’s decline over the past week, when it reached lows near USD $52,800 per unit.
The recent setbacks over the last seven days were driven by fears of a possible economic recession in the U.S. and the Federal Reserve’s need to implement measures to stimulate financial markets.
Adding to this uncertainty is the U.S. presidential race, which features former President Donald Trump, the Republican candidate, against Vice President Kamala Harris, the Democratic contender. Although the race appears highly competitive, analysts believe that the cryptocurrency sector could influence the outcome in favor of one contender.
