For Bitcoin Traders, Is a Fed Rate Cut Already Priced In?

Bitcoin has typically performed well in a low interest rate environment, but the asset may not rise in the aftermath of a widely expected U.S. central bank interest rate slashing on Wednesday, say analysts, who believe markets have already priced in the cut. 

The analysts say that traders will be looking more keenly at what Federal Reserve chair Jerome Powell says in the press conference after the announcement. 

“It does seem to be pretty priced in,” Juan Leon, Bitwise’s senior investment strategist, told Decrypt. “[A cut] has been digested by the markets. Where it gets interesting is what Powell says afterwards—that’s where you’ll see crypto markets flatten out or rally,” he continued. 

The odds of the Fed reducing the rate by a quarter point currently stand at 96%, per the CME’s FedWatch tool, the widely watched measure of investor sentiment. Equities and crypto jumped this week on that data. 

At one point Tuesday, Bitcoin’s price rose to nearly its highest level in a month. The largest digital asset by market capitalization was recently priced at $116,559, up nearly 5% over the past seven days, according to crypto market data provider CoinGecko. The cryptocurrency remains about 7% off its all-time high of $124,128 set in August.

A Myriad market found that nearly nine in 10 consumers expect the price to remain above $105,000 throughout September. 

(Disclosure: Myriad is a prediction market and engagement platform developed by Dastan, parent company of an editorially independent Decrypt.)

Other major digital assets have also risen well into positive territory, with Ethereum and XRP, the second and third largest cryptos by market value, up 4.8% and 3% over the same period, respectively. Solana has climbed a whopping 10%, although its gains have been fueled partly by the recent expansion of Solana treasuries. 

The Fed has left interest rates intact in a range between 4.25% and 4.50% for the past five meetings stretching to last December, when it announced a .25% rate cut. In comments following these decisions, Powell has reiterated the bank’s concerns about inflation, which has remained stubbornly above the Fed’s 2% annual target, and vowed to base future decisions on data. 

But recent jobs reports, including a 911,000 downward adjustment in the number of jobs created over a year-long period ending this March, suggested that the economy was sagging and boosted prospects of a rate cut. Powell may offer hints on Wednesday about the Fed’s future thinking. 

Bitcoin and other risk-on assets have generally risen on dovish (favoring low interest rates) that would lead to the injection of capital into markets and declined on hawkish rhetoric. 

“Lower interest rates increase the liquidity in circulation, and investors deploy capital into more risky assets such as stocks and crypto,” Chief Growth Officer at RockawayX Samantha Bohbot said, adding that “any hawkish comments might lead to repricing and sell off.”

Complicating the Fed’s task has been President Donald Trump’s relentless campaign for a rate cut. Most recently, he tried to fire Federal Reserve Board of Governors member Lisa Cook, whom he has perceived—possibly wrongly–of being an impediment to cutting rates. Cook is considered dovish by many accounts. 

A federal appeals court on Tuesday blocked his order, which also more generally raised the issue of the Fed’s independence to set monetary policy. Those concerns and wider macroeconomic uncertainties, including Trump’s trade war, have left investors unbalanced. Gold, the traditional safe haven asset, rose to a record high on Tuesday above $3,730. It is up more than 10% over the past month. 

If a series of rate cuts is imminent, or if the central bank reduces the rate by a greater-than-expected .50%, Bitcoin and other crypto prices could jump, Carlos Guzman, a research analyst at market maker GSR, told Decrypt.

“Updates coming out of the FOMC meeting could still move markets depending on what they signal for rate policy later in the year, and the Fed could still surprise markets by opting for a 50bps cut rather than the overwhelmingly expected 25bps,” he said.