The Fed Finally Lowers Its Rates, What Will Happen To Bitcoin?

The American Federal Reserve (Fed) has just announced a cut in its interest rates this Wednesday, September 18, marking a major shift in its monetary policy. This decision, long anticipated by the markets, could have significant repercussions on the crypto ecosystem, particularly Bitcoin.

A monetary shift with uncertain consequences

The Fed, after pursuing an aggressive tightening policy since 2022, is changing course. The Monetary Policy Committee has decided to lower the target range for the federal funds rate by half a percentage point, bringing it down to between 4.75% and 5%. This reduction aims to support the economy in the face of uncertain prospects, while acknowledging the progress made in terms of inflation.

“Economic activity has continued to grow at a strong pace, although job creations have slowed and the unemployment rate has slightly increased“, reads the Fed’s statement. It also noted that “inflation has moved toward the Committee’s 2% objective but remains somewhat elevated“.

This decision was not unanimous within the Committee. Michelle W. Bowman voted against this measure, preferring a more moderate quarter-point reduction.

The scale of this cut raises questions. Such a significant reduction could be seen as a signal of economic concern, while a more moderate cut could have been interpreted as a more cautious approach.

The impact of this decision is already being felt on the financial markets. Investors, accustomed to a predictable Fed, must now navigate a more uncertain environment. This situation could lead to increased volatility, particularly in risky assets like stocks and cryptocurrencies.

Bitcoin, between opportunities and risks

Contrary to expectations, the rate cut might not be as beneficial for Bitcoin as one might think. Arthur Hayes, former CEO of BitMEX, offers an interesting explanation: the reverse repurchase agreements (RRP) mechanism could divert liquidity away from risky assets, including Bitcoin.

RRPs currently offer attractive returns, drawing money market funds at the expense of other investments. This could limit the inflow of capital into Bitcoin, despite a theoretically favorable context.

Even more alarming, a recent report from Bitfinex predicts a possible 15 to 20% drop in Bitcoin’s price following this rate cut. This prediction runs counter to the commonly held belief that monetary easing is always positive for cryptocurrencies.

The Fed’s rate cut marks a crucial turning point for the American economy and the crypto market. Although traditionally perceived as favorable for risky assets, this decision could have unexpected consequences for Bitcoin.