Bitcoin price rises after Fed interest rate cut

Brian McGleenon

Bitcoin (BTC-USD) has gained by over 4% to $62,505.57 (£47,088.57) following the US Federal Reserve’s decision to cut its benchmark interest rate by 50 basis points. The new range now stands at 4.75% to 5.25%, marking a significant shift in the central bank’s monetary policy.

This is the first time bitcoin has crossed the $62,000 threshold since late August, with the interest rate cut buoying the broader cryptocurrency market.

According to data from CoinGecko, the global cryptocurrency market cap now stands at $2.24tn, reflecting a 2% increase.

The US dollar index (DX-Y.NYB) declined following the Fed’s decision, and bitcoin tends to appreciate when the dollar weakens.

Growing anticipation of improved liquidity from the Federal Reserve’s first rate cut in four years is boosting market sentiment toward risk assets, according to YouHodler chief of markets Ruslan Lienkha. As a result, bitcoin and other cryptocurrencies stand to benefit from a potential renewed wave of investor optimism.

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"The Federal Reserve's dovish 50 basis point rate cut has materialised and may increase market volatility in the coming days, potentially pushing bitcoin's price toward its all-time high," he said.

However, Lienkha also warned that the aggressive rate cut might signal deeper concerns about the economy. "In the long-term, this rate cut move could also be seen as an emergency measure, suggesting that the Fed may have delayed action and misjudged the optimal timing for easing," he said.

While some analysts are bullish on bitcoin’s near-term prospects, others remain cautious about its longer-term trajectory.

Matt Mena, 21Shares crypto research strategist, said: “A 50 bps rate cut could signal to the market that the economy is slowing, hinting at underlying issues that may not yet be apparent. This could unsettle both traditional and digital investors, potentially triggering initial volatility. However, over the long term, bitcoin and other digital assets have historically thrived in low-interest-rate environments."

Deutsche Bank analysts Marion Laboure and Sai Ravindran offered an optimistic outlook on bitcoin's short- to medium-term performance.

"Looking ahead, we expect cryptocurrency democratisation to advance over the next two to three years, driven by spot bitcoin exchange-traded funds, US Federal Reserve policy, and regulation," they said in a recent report.

They expect bitcoin prices to remain elevated, citing key factors such as January's spot bitcoin exchange-traded fund (ETF) approvals, central bank rate cuts, regulatory shifts, and even a potential Trump presidency, which could favour pro-crypto policies and lower interest rates.

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However, according to Deutsche Bank's The Crypto Ocean: Surges and Swells report released last Thursday, consumer sentiment toward bitcoin still remains mixed. While optimism around cryptocurrency has grown in 2024, with fewer than 1% of respondents viewing it as a "fad," many still hold a bearish outlook for bitcoin’s near-term price.

In a survey conducted in late July — when bitcoin was trading between $60,000 and $70,000 — about one-third of respondents predicted that prices would fall below $60,000 by the end of the year. Only 12% to 14% believed bitcoin could cross the $70,000 mark again.

Longer-term sentiment also reveals caution. Over 50% of respondents to the Deutche Bank (DB) survey expressed concern about a potential collapse in the cryptocurrency market within the next two years. Opinion is divided on bitcoin's future, with 40% believing it will thrive in the coming years, while 38% expect it to disappear or collapse by 2026.

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Traders are looking ahead to the upcoming US presidential election on 5 November, with analysts noting that Donald Trump’s pro-crypto stance may contribute to price growth if he wins the election.

Standard Chartered global head of digital assets research Geoff Kendrick has forecasted that bitcoin could reach $125,000 by the end of 2024 in the event of a Trump victory, or $75,000 if Kamala Harris wins when Americans go to the polls.

"I think bitcoin ends the year higher, at new all-time highs, no matter who wins the US election," Kendrick added.

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