Bitcoin dropped sharply following the Federal Reserve’s second consecutive interest rate cut, with traders balking at surprisingly hawkish comments from chair Jerome Powell (even as traders brace for the “mother of all” Fed pivots”).
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The bitcoin price fell to around $108,000 per bitcoin before rebounding to just over $111,000, with a “death knell” warning putting the bitcoin price on the brink.
Now, as Tesla billionaire Elon Musk sets bitcoin alarm bells ringing with a surprise move, bitcoin and crypto analysts are betting a return of liquidity will propel the bitcoin price higher in the months ahead.
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U.S. Federal Reserve chair Jerome Powell has confirmed the Fed will end its balance sheet reduction program in December—something some think could trigger a bitcoin price boom.
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“[The] rate cut continues the path of loosening monetary conditions in the U.S. and abroad,” Alex Blume, the chief executive of investment adviser Two Prime, said in emailed comments. “It’s evident that the U.S. government intends to grow its way out of debt and inflation, rather than through austerity.”
The Fed met expectations with a second consecutive 25 basis point interest rate cut, a welcome sign for bitcoin and crypto investors that monetary policy is loosening.
However, in his post-announcement press conference, Fed chair Powell, warned that a “rate cut in December is far from a foregone conclusion,” sending market expectations of another cut before the end of the year sharply lower, according to CME’s FedWatch tool. Previously, the market had priced in a 90% chance of another cut in December, but that’s now shrunk to just 70%.
In what might prove to be a more impactful decision, the Fed said it will halt its $6.6 trillion balance sheet reduction on December 1.
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The bitcoin price has fallen back from its October all-time high but remains well above previous peaks.
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“Our long-stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said in comments reported by Reuters. “Signs have clearly emerged that we have reached that standard in money markets.”
The end of the Fed’s so-called two-year quantitative tightening (QT) program has been seized on by some as signaling a return to quantitative easing and stimulus measures.
“Lower interest rates reduce the opportunity cost of holding digital assets, a weaker dollar enhances their appeal, and increased liquidity tends to drive flows into higher-beta sectors like bitcoin and ethereum,” Nicholas Roberts-Huntley, the chief executive of Blueprint Finance, said in emailed comments.
“While the full effects won’t be felt overnight, crypto is entering a more supportive macro environment, and that tailwind could help propel a sustained uptick in the coming months.”
The Fed’s next step “will be to begin expanding the balance sheet by roughly $20 billion per month,” Paul Ashworth, chief North America economist with research firm Capital Economics, told Reuters, allowing the financial system’s monetary base to match the expansion of gross domestic product.
