The Federal Reserve's potential decision to cut interest rates by 50 basis points could have unintended consequences for Bitcoin. While lower interest rates typically boost risk assets, the scale of this cut might indicate deeper economic concerns that could make investors cautious.
Historically, the Fed has favored smaller moves, typically opting for 25 bps adjustments. The possibility of a 50 bps cut suggests that the central bank might be behind in addressing economic weaknesses. Such a large cut could be seen as urgent and might lead investors to retreat from risk assets like Bitcoin.
Markus Thielen, founder of 10X Research, warned that the Fed's primary focus will be mitigating economic risks rather than managing market reactions. A large cut could emphasize economic worries, prompting investors to seek stability in safer assets, hurting Bitcoin.
The Chicago Mercantile Exchange's FedWatch tool shows a 25% chance of a 50 bps rate cut, adding to market speculation. Mati Greenspan, CEO of Quantum Economics, noted that while a 25 bps cut might support Bitcoin’s price, a 50 bps cut could have the opposite effect and be seen as an act of desperation, leading to a negative market reaction.
Ultimately, while Bitcoin investors view rate cuts positively, a larger-than-expected cut could signal economic trouble ahead, putting downward pressure on Bitcoin.
