By Will the Federal Reserve interest rate cut boost Bitcoin?
Bitcoin rallied and moved above $115,000 last week as expectations of Federal Reserve interest rate cuts rose and as exchange-traded inflows jumped by over $2.3 billion.
At last check on Sunday, Sept. 14, the top cryptocurrency was down 0.5% for the day. See below.
Summary
- Bitcoin price has rallied ahead of the Federal Reserve interest rate decision.
- Economists expect the bank to cut interest rates by 0.25%.
- While BTC price may jump, the rising wedge pattern points to a dive.
Federal Reserve to cut interest rates
The most significant macro tailwind this week will be the Federal Open Market Committee (FOMC) interest rate decision on Wednesday.
Kalshi and Polymarket odds of a 25 basis point cut stand at almost 100%. Similarly, the CME FedWatch Tool confirms this view.
In theory, the start of the Federal Reserve interest rate cuts should be bullish for Bitcoin (BTC) and the crypto market. Historically, these assets have thrived in the era of easy money policies but struggle when the Fed tightens.
For example, Bitcoin price jumped to a record high during the pandemic as the Fed slashed rates and then crashed to below $16,000 as the bank hiked in 2022.
Fueling the bullish case is that the rate cut is coming towards the fourth quarter, which is usually its best-performing ones. CoinGlass data shows that the average Bitcoin return in Q4 since 2013 is over 84%.
However, there is a risk that the Fed cut will not boost Bitcoin for two main reasons. First, the rate cut has already been priced in, which would make it a sell-the-news opportunity. This risk will be elevated if the Fed delivers a hawkish cut.
Bitcoin price has formed a risky pattern
The other main risk is that the Bitcoin price has formed a nearly-perfect rising wedge pattern on the weekly chart. This pattern consists of two ascending and converging trendlines. With this convergence happening, there is a risk that a breakdown will happen soon.
The other technical risk is that oscillators like the Relative Strength Index and the MACD have formed a bearish divergence pattern. This pattern occurs when the asset price has a downward trajectory despite being rising.
As such, while the Fed cut is highly bullish for Bitcoin and the crypto market, there is also a risk of a potential pullback when it happens.
