Cointelegraph Featured Zerocap Insights | Bitcoin Price Outlook After Fed Rate Decision

Read more in a recent Cointelegraph article.

17 September, 2024: Bitcoin’s price trajectory has remained uncertain in the recent week as market participants anxiously await the Federal Reserve’s upcoming rate decision. Jonathan de Wet, CIO at Australian crypto trading firm, Zerocap, predicts that Bitcoin could rally to $65,000 or fall as low as $53,000, depending on key economic decisions and the broader geopolitical landscape. The combination of the Federal Reserve’s potential rate cuts and the looming U.S. presidential election has added layers of complexity to Bitcoin’s near-term outlook.

In this article, we will examine the key factors that could influence Bitcoin’s price movement, focusing on insights from Zerocap’s CIO in a Cointelegraph article that covered how the macroeconomic and political environments could shape Bitcoin’s performance over the coming months.

The Impact of Federal Reserve Rate Cuts on Bitcoin

Bitcoin’s price is heavily influenced by changes in monetary policy, particularly the Federal Reserve’s decisions around interest rates. Lower interest rates can boost risk assets like Bitcoin, as investors have greater access to cheap capital, potentially driving prices higher. However, Jonathan de Wet cautioned that Bitcoin’s future price action remains “tough to call” as traders and investors digest the potential impact of the Fed’s next move.

The market currently expects the Federal Reserve to cut interest rates by 50 basis points (0.5%) on September 18. De Wet explained, “We’re seeing a BTC downside target of 53,000 after the recent range lows, with an upside target of 65,000 after breaking higher from the descending wedge.” This forecast underscores the volatility and uncertainty in the market.

De Wet also pointed out that the market has already started reacting to expectations of a rate cut, saying, “The market is now anticipating a 62% chance that the Fed will cut rates by a minimum of 50 basis points (0.5%), which already contributed to the brief rally that saw Bitcoin touch $60,000 on Sept. 13.”

While a rate cut could theoretically bolster Bitcoin prices by making riskier assets more attractive, de Wet emphasized that the short-term impact of rate cuts on Bitcoin remains uncertain. “Tough to call on direction until we get closer to the election, but risk-on conditions should lead to short-term positive sentiment,” he said.

Potential Rally to $65,000

Should the Federal Reserve deliver the widely anticipated 50 basis point rate cut, Bitcoin could be primed for a rally toward $65,000. This level represents the upper end of Zerocap’s price target for Bitcoin, especially if it breaks out of the descending wedge pattern, which is considered a bullish technical signal.

De Wet noted that favorable economic data, particularly related to inflation, could act as a catalyst for Bitcoin to push higher. “Bitcoin is currently trading at $58,000, after rising to just over $60,000 on Sept. 13, thanks mainly to robust CPI and PPI inflation data.” Inflation is a key factor that drives demand for Bitcoin, as it is often viewed as a hedge against the devaluation of fiat currencies.

Additionally, Zerocap’s analysis suggests that the Federal Reserve’s rate cut could be the start of a longer-term rate-cutting cycle, which would generally be supportive of risk assets like Bitcoin. De Wet commented, “The Fed’s dot plot is looking more and more like the start of a rate-cutting cycle, which should support risk assets into the end of the year.”

If the macroeconomic environment remains favorable and the Federal Reserve continues to cut rates, Bitcoin could see increased demand from investors looking to diversify their portfolios in search of higher returns, particularly as borrowing costs decrease.

Downside Risks to $53,000

Despite the potential for a rally, there are significant risks that could push Bitcoin’s price lower, potentially to $53,000. This downside scenario is tied to broader economic concerns and political uncertainties, both of which have the potential to dampen market sentiment.

Historically, rate cuts have not always led to bullish outcomes for risk assets like Bitcoin. De Wet pointed out that previous periods of rate cuts—such as in 2001 and 2007—preceded recessions, leading to market downturns. “Several analysts have pointed to previous market activity in 2001 and 2007, where rate cuts preceded recessions, particularly in the presence of weakening macroeconomic conditions,” said de Wet.

There is also the possibility that if inflation data softens, it could weaken the narrative that Bitcoin serves as a hedge against inflation, further reducing its attractiveness to investors. In such a scenario, Bitcoin could face selling pressure as investors move back to safer assets like bonds or cash, driving the price down toward $53,000.

U.S. Election Uncertainty and Its Impact on Bitcoin

The upcoming U.S. presidential election in November is another critical factor contributing to the uncertainty surrounding Bitcoin’s price action. Political events, especially those as significant as the U.S. election, can have profound effects on financial markets, including cryptocurrencies.

De Wet highlighted the potential influence of the election on Bitcoin, particularly if Vice President Kamala Harris secures a victory. “Continued uncertainty around the upcoming U.S. election is weighing on the crypto market, with investors unsure of how a Harris victory could impact the crypto sector on U.S. soil.” Investors are concerned that a Harris administration could impose stricter regulatory measures on the crypto industry, which could dampen Bitcoin’s long-term growth potential.

On the other hand, a shift in the political landscape back toward the Republicans could spark a different market reaction. De Wet explained, “Harris leads in the polls and had a convincing win over Trump in the recent debate. If these odds begin to shift back towards the Republicans, watch out for the long banks, energy, and bitcoin trade with a Trump win.” A Trump victory might be viewed more favorably by market participants, as his administration has historically been seen as more business-friendly and less likely to impose strict regulations on the cryptocurrency market.

Zerocap’s Overall Market Outlook

Despite the uncertainties surrounding Bitcoin, Zerocap remains cautiously optimistic about the cryptocurrency’s prospects in the near term. De Wet acknowledged that the upcoming Federal Reserve rate cuts could provide a short-term boost to Bitcoin and other risk assets. He said, “Given the Fed has waited this long for the initial cut, Zerocap is in the 50 bps camp, as opposed to backing the more conservative call of 25bps.”

However, this optimism is tempered by the unpredictable nature of both the U.S. election and the global economy. The crypto market is likely to remain volatile in the months leading up to the election, and any major shifts in economic data could further influence Bitcoin’s price trajectory.

Market participants should keep a close eye on developments such as inflation data, employment figures, and corporate earnings reports, which could all impact risk appetite and, by extension, Bitcoin’s price movement.

Final Thoughts

Bitcoin’s price action remains challenging to predict due to the complex mix of macroeconomic and political factors. While there is a strong possibility that Bitcoin could rally to $65,000 following a Federal Reserve rate cut, there are also significant risks that could push the price lower, particularly if broader economic or political conditions worsen.

Zerocap’s analysis indicates that much of Bitcoin’s near-term price action will depend on how well the economy responds to the Federal Reserve’s rate cuts and the outcome of the U.S. presidential election. Investors should remain vigilant, monitor key events, and prepare for continued volatility in the crypto market.

Disclaimer

This article includes a summary of content originally published in Cointelegraph article. The information is intended for informational purposes only. Zerocap does not endorse or approve any specific content or viewpoints contained in the original articles.

Zerocap are not regulated by ASIC. Zerocap Pty Ltd is registered with AUSTRAC as a Digital Currency Exchange (DCE) service provider (DCE100635539-001) and is a Corporate Authorised Representative (CAR: 001289130) under an ASIC regulated licensee (AFSL 340799) to serve financial products and services.

www.zerocap.com