Analysts Warn of 20% Bitcoin Drop Amid Recession Fears from US Rate Cut
Date: 2024-09-05 Author: Henry Casey Categories: CRYPTO PAYMENTS
A long-awaited interest rate cut by the US Federal Reserve could have an unexpected impact on Bitcoin, potentially driving down its price, analysts warn.
In a report on September 2, Bitfinex analysts warned that a US rate cut could create a “challenging time” for Bitcoin traders.
While a 25 basis point rate cut is seen as a more favorable outcome that could “lead to a longer-term rally in Bitcoin as liquidity increases and recession fears ease,” the report stresses that a more aggressive rate cut could have the opposite effect.
A 50 basis point rate cut could trigger a correction, deepening Bitcoin’s recent slide as “recession fears intensify.” The analysts added:
Recession fears intensified in early August when the Sahm Rule recession indicator, which tracks economic contractions, rose to 0.53 from 0.43 after weak U.S. employment data, signaling a looming recession.
Looming Fall: Traders See Rate Cut in September
As the Federal Open Market Committee (FOMC) meeting approaches on September 18, a majority of traders on Polymarket are betting on a rate cut by the U.S. Federal Reserve.
Data from the decentralized betting platform shows that 69% of traders expect a 25 basis point rate cut, reflecting a strong consensus on the matter. Meanwhile, 27% expect a larger 50 basis point cut, while only 3% expect the rate to remain unchanged.
The current decline in inflation and the weakening labor market are raising expectations that the Federal Reserve may take action to provide additional economic support. These developments are consistent with the Fed’s dual mandate to control inflation while promoting economic growth.
While most analysts agree that a 25 basis point rate cut is likely, they also note that a larger cut could be considered if economic conditions deteriorate further.
Fed Chair Jerome Powell recently said at the Jackson Hole Symposium that “it’s time” for the US Federal Reserve to cut interest rates.
According to Investec economist Lottie Gosling, very weak data could make a 50 basis point rate cut more likely, while strong data could rule out the possibility of a larger cut.
“While Powell declined to comment on whether a 50 basis point rate cut in September might be possible, we suspect that further apparent deterioration in the labor market could tip the FOMC toward more aggressive easing,” Gosling said.
Bitfinex analysts backed up their claims, noting that September has historically been a “volatile month” for Bitcoin, and the expected Fed rate cut adds another “layer of complexity that could exacerbate market volatility.”
Short-Term Pain for Long-Term Gain: Bitcoin at $100K Still Possible
If Bitcoin were to fall 20%, it would reach $46,000, levels not seen since February 8. This view is consistent with previous analysis by 10x Research, which identified the low 40,000 zone as the optimal entry point for the next bull market.
However, not all analysts agree on the severity of the possible correction. Popular crypto analyst Moustache believes the market bottom could be around $57,000, citing historical fractal patterns used to identify key support and resistance levels and potential trend reversals.
Bitcoin currently has significant support at $57,000. However, a possible decline below that level would wipe out more than $860 million in cumulative leveraged short positions, according to CoinGlass.
While Bitcoin’s short-term outlook may be grim, based on historical and technical patterns, a six-figure Bitcoin is “still possible.”
Notably, popular trader Titan of Crypto pointed to the final quarter of this year as a potential breakout point, describing it as having “epic” potential for price action — a sentiment echoed by other analysts.
