The Federal Open Market Committee (FOMC) meeting is coming up, and market players are excited about it since it will likely have a significant impact on how Bitcoin and other digital assets are seen in the near future. Interest rate cuts are a hot topic right now, and traders and investors have been making predictions about them for a while.
The FOMC is expected to choose between a 25-basis point reduction and a more significant 50-basis point cut, though the precise size of the rate cut has not yet been confirmed. A well-known economist believes that the FOMC’s decision may either cause riskier assets like Bitcoin to sell off or increase in value.
Steve Hanke, a Johns Hopkins University economist, recently discussed his thoughts on the possible effects of the US Federal Reserve’s projected interest rate reduction on the cryptocurrency industry with The Block. Hanke claims that the 25 basis point rate decrease that many investors are currently anticipating would eventually cause a “sell-the-news” event for the cryptocurrency market as a whole.
He clarified that the likelihood of such a reduction has already been priced in by the market and is being incorporated into the price movement of many investment marketplaces. In reality, the market’s response to the official announcement of the drop might be lackluster, which might lead to a wave of cryptocurrency sell-offs.
Hanke noted that the market has not yet fully priced in a 50-basis-point decrease by the Federal Reserve, in contrast to the more anticipated 25-basis-point reduction. Therefore, the Fed’s 50 basis point rate drop could possibly “give the market a lift.”
With Federal Reserve Chair Jerome Powell stating last month that “the time has come” for rate decreases, the US is beginning to see a slowdown in inflation. At this moment, the rate points are at their highest point in 23 years, between 5.25% and 5.50%. Rate points are used to describe changes in the federal funds rate within the framework of the Federal Open Market Committee (FOMC). The main goals of the Fed’s interest rate increases and decreases are to promote economic expansion and manage inflation.
In theory, a decrease in the Federal Reserve’s interest rates might create a conducive atmosphere for cryptocurrencies. Because traditional savings and fixed-income assets (like bonds) now offer lower returns due to rate reduction, investors who are risk averse are turning to cryptocurrencies.
As of this writing, it is difficult to forecast how the market will respond to a rate drop given the state of the market. This is due to conjectures on whether the rate decrease has already been priced in, as one of the factors that led to Bitcoin’s rise earlier in the year was the anticipated rate cut. As of this writing, Bitcoin is trading for almost $60,000. This represents a 3.5% increase in just one day.
