Bitcoin and US Equities Experience Decline Following Powell’s Signal for Fewer Rate Reductions
Both Bitcoin (BTC) and US stocks faced a downturn in the midst of Monday’s intra-day trading on 30th September. Bitcoin encountered a 3% drop, reaching $63,000, a movement that aligned with Federal Reserve chair Jerome Powell’s comments on expectations for rate cuts.
Speaking at the National Association for Business Economics conference in Nashville, Powell made it clear that he does not favor a specific pace for reducing interest rates.
He predicted two more interest rate cuts, each being 25 basis points, before the conclusion of the year.
“If the economy progresses as anticipated, there will be two additional cuts by the end of the year, amounting to a total decrease of half a percentage point.”
Market Adjusts Expectations for Fed Rate Cuts
Prior to this, the market had anticipated a more aggressive 50 basis points cut in November, comparable to the adjustment made in September.
But following Powell’s statements, interest rate traders are now predicting a higher likelihood of a 25 basis points cut at 61.8%.
In contrast, the probability of a 0.50% cut fell to 38.2% from 53% recorded on Friday, 27th September.
This shift in sentiment has set the tone for the new week, especially in light of critical US labor updates. Notably, US interest in BTC switched from a positive reading on 1st November to a negative one as per the Coinbase Premium Index.
Compared to the previous Friday’s nearly $500 million daily inflows in US spot BTC ETFs, these products only gathered $61.3 million on Monday, 30 September.
However, the $63,000 level could play a significant role as support in the short run. According to CryptoQuant, this level represents the realized price for short-term holders (STH) and has been serving as a support level since mid-September.
Currently, BTC is priced at $63,900, just before key US labor updates.
There may be another potential positive driver with increasing indications of the Fed phasing out quantitative tightening (QT) as more institutions utilize the Fed’s Repo facility. This move could inject more liquidity from the Fed and elevate risk assets.
Nonetheless, escalating geopolitical tensions in the Middle East might pose a challenge to BTC’s “Uptober” expectations and warrants close monitoring.