As investors eagerly await the Federal Reserve’s interest rate decision this Wednesday, some analysts are cautioning that an overly aggressive rate cut could actually harm risk-on assets like Bitcoin.
While lower interest rates are generally seen as a positive for cryptocurrencies, a more substantial cut might signal deeper economic concerns, leading investors to retreat from riskier assets.
Shannon Saccocia, chief investment officer at Neuberger Berman Private Wealth, told MarketWatch that a more aggressive cut could suggest a weaker-than-expected economy. Dave Birnbaum, VP of product & marketing at Coinbits, echoed this sentiment in a Forbes article.
The Chicago Mercantile Exchange’s FedWatch tool currently indicates a 59% probability of a 25 basis point cut and a 41% chance of a larger 50 basis point reduction. However, historical data suggests that markets may have underestimated the scale of Fed rate cuts in the past.
Despite these concerns, crypto investors remain optimistic about the potential benefits of new rate cuts. Historical data shows a correlation between Fed easing and Bitcoin price rallies.
In 2019, the Fed’s three consecutive 25 basis point cuts coincided with a significant surge in Bitcoin’s price. Even after the initial Covid-19 downturn, Bitcoin’s price eventually climbed 1,300% to reach a new high.
