Bitcoin’s price is under intense scrutiny as investors eagerly await next week’s Federal Reserve meeting. The expectation of a significant interest rate cut by US policymakers has fueled speculation about a potential surge in cryptocurrency values.
Historically, lower interest rates have encouraged investment in higher-risk assets, such as cryptocurrencies. Last year’s August rate cut doubled Bitcoin’s price, prompting traders to anticipate a similar outcome.
Fundstrat Global Advisors’ managing partner, Tom Lee, predicted on CNBC that Bitcoin could easily reach $200,000 by the end of the year. He highlighted the sensitivity of cryptocurrencies to monetary policy, emphasizing the September 17th Fed meeting as a crucial catalyst.
Supporting this view, Sean Dawson of Derive Research estimated a 23% probability that Bitcoin would exceed $140,000 by year-end, with a concurrent 60% increase in Ethereum’s price to $7,000.
The Federal Reserve’s decision carries immense weight for the crypto market, as liquidity conditions and capital availability are largely determined by Fed policy.
While a 0.25% rate cut is favored (with an 88% probability according to CME FedWatch), the possibility of a more substantial 0.5% cut (12% probability) is generating considerable discussion, fueled by a weaker-than-expected August jobs report. Polymarket data indicates a rise in the perceived probability of a 0.5% cut, from 10% to 18% this week.
CEX.IO’s lead analyst, Illia Otychenko, noted to DL News that a smaller rate cut might not cause significant market fluctuations as it’s already largely factored into market prices. Conversely, a 0.5% cut would be unexpected and potentially disruptive, resetting year-end expectations.
Otychenko suggests a smaller cut would have a mildly positive effect. In comparison, a larger cut could either boost risk appetite or unsettle markets, depending on the underlying reasons.
However, the possibility that the Fed will not cut rates at all remains a risk. Ecoinmetrics analysts warn that such a hawkish surprise could negatively impact Bitcoin and tech stocks. Furthermore, Dawson cautioned about a 20% likelihood of Bitcoin dropping below $100,000 and Ethereum falling to $3,500.
Despite this uncertainty, Bitcoin ETFs experienced significant inflows, attracting $368 million on Monday and $1.1 billion over the past 10 days (Source: SoSoValue).
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