Market participants waiting with anticipation the upcoming meeting of the Federal Open Market Committee (FOMC), which is expected to play a crucial role in shaping the short-term outlook for Bitcoin and other digital assets. The spotlight is on the possibility of a rate cut and many traders and investors have been speculating about it for some time now.
While the exact size of the rate cut has not yet been confirmed, there is widespread expectation that the FOMC will opt for a 25 basis point cut or a more substantial 50 basis point cut. According to a leading economist, the FOMC’s decision could either trigger a sell-the-news event for risk assets like Bitcoin or give them a boost.
Economist predicts major ‘Sell The News’ event
In a recent conversation With The Block, Johns Hopkins University economist Steve Hanke shared his perspective on the potential implications of the U.S. Federal Reserve’s expected rate cut for the cryptocurrency sector. According to Hanke, a 25 basis point rate cut, which many investors are currently expecting, could ultimately result in a “sell-the-news” event for the broader crypto industry.
He explained that the market has already priced in the possibility of such a cut and has been included in the price action of various investment markets. In fact, once the cut is officially announced, the market reaction could be disappointing, potentially triggering a wave of sell-offs among cryptocurrencies.
Unlike the more expected 25 basis point cut, Hanke pointed out that a 50 basis point cut by the Federal Reserve has not yet been fully priced into the market. As such, a 50 basis point rate cut by the Fed could surprisingly “give the market a boost.”
What to Expect Ahead of the Upcoming FOMC Meeting
Inflation in the US is starting to cool, with Federal Reserve Chairman Jerome Powell noting last month that “the time has come” to cut rates. Rates are currently in the 5.25%-5.50% range, the highest level in 23 years. In the context of the Federal Open Market Committee (FOMC), rates refer to changes in the federal funds rate. The Fed raises or lowers interest rates primarily to stimulate economic growth and keep inflation in check.
A Fed rate cut could theoretically provide a favorable environment for cryptocurrencies. Rate cuts mean that traditional savings and fixed income investments (such as bonds) offer lower returns, causing risk-averse investors to turn to cryptocurrencies.
However, given current market conditions, it is unlikely that the market will respond to a rate cut. is easier said than done at the time of writing. This is because the expected rate cut is a contributing factor to Bitcoin’s rise earlier this year, leading to speculation about whether the rate cut has already been priced in.
At the time of writing, Bitcoin is trading around $60,000, up 3.5% in 24 hours.
Main image created with Dall.E, chart from Tradingview.com