Bitcoin Might be Tested by the First Fed Rate Cut Today

Fredrik Vold
Last updated: | 2 min read
An eagle carved in stone on the Federal Reserve building in Washington, D.C. Source: iStock/dgrilla

With Bitcoin about to experience the first interest cut by the Federal Reserve [the central bank in the U.S.] in its history today, some traders are watching closely for clues on how the bitcoin price might react.

(Read more: This is How Bitcoin Met its First Fed Rate Cut)

According to some high-profile analysts, including co-founder of Fundstrat Global Advisors Tom Lee, the expected rate cut could be good news for the number one cryptocurrency.

Writing on Twitter last week, Lee said he expected higher bitcoin prices last weekend ahead of the rate announcement from the Fed. Although he was only partly right on that – Saturday was negative while Sunday was positive – Lee may get a new chance to prove himself right when the interest rate statement is released today at 2:00 PM U.S. Eastern Time (18:00 UTC).

Majority of analysts estimate that the Fed will cut its main interest rate by 25 basis points, bringing it down to a target range of 2%-2.25%.

According to conventional wisdom, traditional store-of-value assets such as gold and silver tends to rise in price whenever interest rates go down, as the alternative to owning these non-yielding assets then becomes less attractive. Depending on to what extent bitcoin can be considered a mainstream store-of-value asset, the same may also be true for the dominant cryptocurrency.

As usual, however, others disagree with that view, saying that bitcoin is not likely to react in any way to a Fed rate decision or it has already been priced in.

Economist, trader Alex Krüger said: “Let’s recall the last time $BTC reacted to an FOMC [Federal Open Market Committee] decision. …… That’s right, NEVER. Many crypto traders now live in an imaginary alternative reality.”
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However, Jeff Dorman, Chief Investment Officer at Arca, a Los Angeles-based crypto investment management firm, stressed that this is the first time the crypto market might face the rate cut by the Fed.

“Doesn’t that make it hard to form an opinion regarding a situation that has never occurred before? [It] will be interesting. Symbolic if nothing else,” he added.

Still, however, the fact remains that the Fed has never cut interest rates in the U.S. as long as Bitcoin has existed. The so-called Fed Funds Target Rate reached its lowest point of nearly zero in 2008, before rate hikes started in early 2016. Since then, rates have been hiked nine times until today, when the first cut is widely expected to take place today.

Read more: What a Possible Global Recession Could Mean for Crypto