The Unexpected Move by the Federal Reserve Sparks Bitcoin Surge to $62K
Following a surprising 0.50% Federal Reserve rate cut on September 18th, Bitcoin (BTC), the leading cryptocurrency by market capitalization, experienced a remarkable surge to $62K. This hike marked a two-week high, contributing to an increase of nearly 18% in September’s recovery gains.
The aggressive rate reduction took many economists, who were surveyed by Bloomberg, by surprise. Previous polls had shown a consensus leaning towards a 25 basis point (bps) cut, with only 9 out of 114 economists anticipating a 50 bps cut.
Even though the Fed Fund Futures accurately forecasted the 50 bps cut, the likelihood of a more aggressive reduction only shifted earlier in the week.
What Lies Ahead for BTC?
In response to the 0.50% interest rate cut, Fed Chair Jerome Powell explained that it aimed to sustain low unemployment rates now that inflation has subsided. This policy shift effectively initiated the start of a central bank easing cycle that could benefit risk assets, notably BTC.
Despite this, market experts remained wary as the substantial cut raised concerns about a looming recession. Arthur Hayes, the founder of BitMEX, described the 50 bps cut as a “nuclear catastrophe for financial markets,” indicating broader issues within the global financial system.
Hayes suggested that assets might rally initially for a day or two, only to see prices drop subsequently.
21Shares’ Crypto Research Strategist, Mett Mena, shared this cautious sentiment. However, Mena mentioned to CryptoCrypto that the easing cycle could be bullish for BTC in the long run. According to Mena,
“In the short term, a 50 bps rate cut could signal to the market that the economy is slowing… However, over the long term, Bitcoin and other digital assets have historically thrived in low-interest-rate environments.”
Another factor causing market unease for BTC was the strengthening of the Japanese Yen against the U.S. Dollar (USD), particularly considering the significant sell-off witnessed in early August due to the unwind of the carry trade.
With the Bank of Japan (BoJ) decision scheduled for September 20th, Hayes advised monitoring this development to assess the potential direction of BTC’s price.
Meanwhile, the spike to $62K resulted in the liquidation of over $57 million worth of short positions out of $75.5 million, reinforcing a short-term bullish sentiment in the Futures market.