Bitcoin jumps close to $61,000, then pulls back after Fed's rate cut

Bitcoin prices experienced a sudden increase, approaching $61,000 shortly after the Federal Reserve (Fed) lowered US interest rates by 0.5%, its first cut in over 4 years. However, it quickly pared its gains amid volatile trading.

Key Takeaways

1. Bitcoin and S&P500 both increased following the Fed's rate cut.
2. The crypto market cap increased by over 3% in the last 24 hours.

Bitcoin sees gains after Fed’s rate cut

Bitcoin is now trading at around $60,500, up 1.5% in the last hour, according to data from CoinGecko. The largest crypto asset saw a slight decline at Wall Street opening today, as the crypto market awaited the Fed’s interest rate decision and its implications for the economy.

Ethereum (ETH) also soared by 1% to around $2,300 following the rate cut announcement. Other major crypto assets, including Binance Coin (BNB), Solana (SOL), Ripple (XRP), and Toncoin (TON), followed suit, posting sudden gains.

The crypto market cap currently sits at $2.15 trillion, down 3% over the past 24 hours.

Bitcoin’s significant volatility in responding Fed rate cut

Historical data indicates that Bitcoin experienced a 30% crash following the Fed's rate cut announcement in March 2020. However, by the end of that year, the price began to rally, reaching a record high of $61,300.

The decision to cut rates provided a significant boost to the crypto market, which had been grappling with volatility and bearish sentiment in the preceding months. Lower interest rates decrease the opportunity cost of holding riskier assets like cryptocurrencies, making them more appealing to investors.

The Fed's action implies a potential easing of economic conditions, which could positively impact broader financial markets and indirectly support the crypto markets.

However, the aggressive rate cut could also be seen as a response to weakening economic conditions, which may lead to short-term pullbacks in crypto prices.

The market is split on whether the Fed will cut rates by 25 or 50 basis points. Currently, traders see a 63% probability that the central bank will opt for a 50 basis point reduction, according to CME Group’s FedWatch Tool. One basis point equals 0.01%.

This year, Bitcoin has fluctuated between $55,000 and $70,000. Investors are looking to upcoming Fed rate cuts, the expansion of Bitcoin ETFs, and the results of the U.S. presidential election as potential catalysts to energize the crypto market.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.