Bitcoin Falls Despite The Anticipated Drop In Interest Rates: Will The Situation Worsen?

While investors hoped for a breath of fresh air with the possible reduction of interest rates by the Federal Reserve, Bitcoin continues to fall, raising serious concerns about the future of cryptocurrencies. Despite declining inflation and encouraging economic indicators, the markets remain unstable, and geopolitical tensions do not help. Why does Bitcoin not react positively to these economic signals? Are the prospects of recovery threatened by unpredictable global events? In this article, we dissect the reasons behind this complex situation and the stakes for investors in the coming weeks.

Inflation slows, but uncertainties remain

The latest report from the Bureau of Labor Statistics indicates an increase in the Consumer Price Index (CPI) of 2.4% in September, slightly above the forecast of 2.3%, but down from 2.5% in August. This downward trend in inflation is confirmed after months of sustained increases, where the rate had peaked at 9.1% in June 2022. According to 21Shares, this trajectory could favor a reduction in interest rates by the Fed. Thus, the employment report in the United States, which shows a decline in the unemployment rate from 4.2% to 4.1%, reinforces this hypothesis, with an 80% probability of a 25-basis-point reduction in the coming weeks.

The reduction of interest rates has historically had a favorable impact on Bitcoin, as explained by Leena ElDeeb, an analyst at 21Shares. “A rate cut tends to have a favorable impact on Bitcoin by lowering borrowing costs,” she stated. This encourages investors to turn to riskier assets, such as cryptocurrencies. Indeed, despite these encouraging indicators, Bitcoin continues to record a decline of 1.01% and is currently trading around $60,138. Geopolitical tensions and the instability of financial markets are hampering hopes of an immediate recovery for crypto investors.

Geopolitical tensions that cloud the outlook

Despite expectations of lower interest rates, the prospects for recovery in the crypto market are darkened by current geopolitical tensions. International events, from instability in Eastern Europe to war in the Middle East, have amplified global economic uncertainty, which limits investor enthusiasm. As the Fed faces contradictory data (falling inflation but an American economy with mixed signals), cryptocurrencies, particularly Bitcoin, remain sensitive to fluctuations in policies and external events.

Moreover, analysts at 21Shares note that the volatility of traditional markets and the current jitters in tech stocks reinforce this caution. This highlights a key dilemma for investors, torn between the expectation of a more accommodative monetary policy and the fear that international crises will still dominate markets for the rest of the year.

While American economic signals seem to indicate a shift towards more flexible monetary policies, cryptocurrencies, and more specifically Bitcoin, remain vulnerable to geopolitical turmoil. Investors must keep these complex variables in mind before making decisions. While a cut in interest rates could indeed trigger a recovery, it is clear that global volatility could continue to weigh heavily on crypto markets in the coming months.