Bitcoin Holds Above $60K as Traders Warn of Sell-Off on 50 Basis Point Fed Rate Cut

The broad-based CoinDesk 20 (CD20), an index tracking the largest tokens, rose 1.1%.

The Federal Open Market Committee (FOMC) is likely to announce its statement and interest rate decision at 2 p.m. Eastern Time this Wednesday afternoon. Historically, a shift towards reduced lending rates has tended to boost the optimism of traders, as easier access to funds stimulates growth in riskier markets.

As an analyst, I’m interpreting the recent Fed funds data to indicate that traders are anticipating a significant rate adjustment, with approximately a 67% likelihood of a reduction. This expected decrease is projected to lower rates into the 4.5%-5% range, which represents a notable dip from today’s two-decade peak ranging between 5.25% and 5.5%. If the adjustment turns out to be more substantial, we could witness a reduction of half a percentage point, marking a departure from the traditional quarter-point adjustments.

On Polymarket, traders anticipate that there could be either a reduction of interest rates by 1% or 1.25%, with each outcome having approximately a 31% probability.

Yet, others argue that a 50 basis point reduction might prompt a stock market sell-off because it suggests economic concerns are more severe.

Alice Liu, research lead at CoinMarketCap, stated via email to CoinDesk that the magnitude of a rate reduction is crucial as it may prompt varying market responses. A 25 basis point reduction might stimulate markets, but a 50 basis point cut could raise concerns about recession, possibly causing a more severe adjustment in risky assets.

If the interest rate reduction is perceived as an indication of deteriorating economic health, it might spark worries about future profit growth, possibly causing a temporary decline in Bitcoin and other cryptocurrencies, according to Liu. Furthermore, he suggested that the fourth quarter could witness a shift towards greater stability following the U.S. elections.

Typically, the fourth quarter of the year tends to be a robust period for Bitcoin, with an average price increase of about 90.33% over the last decade,” she pointed out.

At the Token 2049 conference held in Singapore, Anthony Scaramucci, founder of SkyBridge Capital, expressed his belief to Bloomberg that bitcoin prices will reach an all-time high due to potential interest rate cuts and clearer regulations concerning cryptocurrency in the U.S. Scaramucci also hinted at the possibility of a 1.5% reduction (150 bps) in interest rates during the next Federal Reserve meeting.

In the realm of cryptocurrencies, Sui has seen a surge of approximately 7%, driven by optimistic market feelings following the launch of USDC on its platform and Circle activating its Cross-Chain Transfer Protocol (CCTP). This protocol facilitates cross-chain transactions within Sui.

At the Token 2049 event, Circle revealed they were partnering with Polymarket to enhance their collaboration. This partnership aims to seamlessly incorporate Circle’s technology into Polymarket’s prediction market platform, encompassing the Circle Collateral Token Platform (CCTP).