Bitcoin is up 6% since the Fed rate cut. What’s next?

Bitcoin has risen roughly 6% since the Federal Reserve revealed its first interest rate reduction in more than four years.

Industry watchers say that while the rate cut has so far proved to be a short-term catalyst for crypto, the longer-term economic outlook remains uncertain.

Bitcoin stood at roughly $63,600 at 2 pm ET Thursday — up from $60,000 24 hours prior.

Read more: Powell pitches 50 bps rate cut to support ‘strength of the economy and the labor market’

Lower interest rates generally drive more investment into riskier assets like crypto, due in part to the diminished returns from traditional investment vehicles, noted Bybit institutional head Chris Aruliah.

“However, the broader global economic slowdown stipulated by softer economic indicators and geopolitical complexities is tempering investor sentiment,” he said in a statement. 

While the rate cut offered a “short-term boost” to crypto markets, Aruliah added, “it is crucial to remain vigilant regarding the potential challenges posed by economic uncertainty and market fluctuations.”

Ruslan Lienkha, chief of markets at YouHodler, offered a similar warning.

The cut is favorable for equity markets and offers a “risk-on signal” for traders in the short term, he explained. It could even push BTC closer to its all-time high (above $73,000, reached in March).

But the move, as some indicated prior, could be seen as an “emergency measure” that suggests the Fed “misjudged the optimal timing for easing,” Lienkha added. 

“Over the next three months, it will become clearer whether the Fed can guide the economy toward a soft landing and avoid a recession in this cycle.”

Wednesday’s cut was likely just the first of several expected rate reductions in the coming months.  

Fed Chair Jerome Powell said at yesterday’s press conference that the Fed is “not on any pre-set course,” adding that rate decisions would be made meeting by meeting based on evolving economic data.

The US central bank “has a lot going for it” in terms of averting a deep recession, said FalconX research head David Lawant. 

“This cooldown commences from a comparatively elevated interest rate baseline, household balance sheets appear relatively robust, and inflation generally seems to be trending in the right direction,” Lawant added. “Nevertheless, unforeseen shocks should never be ruled out.”

Observers had debated whether the Fed’s cut would be sized at 25bps or 50bps. CME Group’s FedWatch tool had pegged the probability of the latter at 55% in the hours leading up to the decision. 

“The Fed has given the market what it was looking for with the bigger 50-basis point rate cut,” LMAX group market strategist Joel Kruger said in an email. “Our concern from here will be the market’s ability to continue to feel good about buying risk assets on future accommodative Fed gestures now that the accommodation has been priced to this extent.”

A modified version of this article first appeared in the daily On the Margin newsletter. Subscribe here so you don’t miss tomorrow’s edition.

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