Bitcoin price slips despite market optimism for interest rate cut

Brian McGleenon

Bitcoin (BTC-USD) fell below the $64,000 (£50,087) mark in early trading on Thursday, a decline of more than 3%.

Bitcoin had been changing hands for around $66,500 on Wednesday, when the US Federal Reserve announced they would hold rates steady at the current 5.25% to 5.5% range which sent the bitcoin price plummeting.

Read more: Crypto live prices

In comparison, stock indices increased in value after Federal Reserve chair Jerome Powell said that a cut to the central bank's key interest rate "could be on the table" at the next policymakers' meeting in September, provided the economy continues on its current trajectory.

By the end of trading on Wednesday, the tech-heavy Nasdaq Composite index (^IXIC) had rebounded 2.64% and the S&P 500 (^GSPC) closed the session 1.58% higher. The Dow Jones Industrial Average (^DJI) saw an uptick of 0.24%.

Interest rates from the Federal Reserve have remained in their current 5.25% to 5.5% range since July 2023. However, markets are anticipating a rate cut in September, with the possibility of a second cut later in the year.

According to the Chicago Mercantile Exchange (CME) FedWatch tool, interest rate traders have increased the chances of a 25-basis point rate cut in September to 86.5%, with a 13.5% probability of a 50-basis point cut. A 50-basis point cut would take the Federal Funds Target Rate down to a range of 4.75% to 5.00%.

Lower interest rates makes borrowing cheaper for both businesses and consumers, which can stimulate economic activity, boost corporate profits, and encourage investment in riskier assets, such as the stock market. According to the International Monetary Fund (IMF), there’s a growing trend of connection between digital assets, such as bitcoin, and financial markets, particularly the tech-heavy Nasdaq.

Read more: What are bitcoin ETNs?

However, bitcoin failed to march in lock-step with Wednesday's stock market rally, instead ticking lower.

The decline in bitcoin's price also coincided with reports that Iran's leadership had ordered retaliatory attacks against Israel, intensifying concerns about a broader conflict in the Middle East. Iran accused Israel of being responsible for the assassination of Hamas leader Ismail Haniyeh on Wednesday in Tehran. However, Israel has not directly claimed responsibility for the strike.

Amid the rising tensions, digital assets incurred losses, with the global cryptocurrency market cap dropping by 3.5%. However, most traditional asset classes have posted gains.

Oil prices (BZ=F) rose on Thursday, gaining alongside US equity pre-market activity, such as Nasdaq futures. Global benchmark Brent crude futures increased by 78 cents, or 1%, to $81.62 (£63.96) per barrel by early market hours in the UK. Meanwhile, gold edged lower with prices trading around $2,432 (£1,905.72) per ounce.

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