Bitcoin prices have been range-bound since a lack of positive cues has left the OG crypto looking for its price trajectory.
But, Ali Martinez took to X to explain that the Fed is 99.5% likely to maintain rates between 4.25% and 4.5%. However, an unanticipated rate drop following the FOMC meeting would be the true market shock and what would cause Bitcoin prices to surge.
How Are Fed Rate Cuts And Bitcoin Price Related?
Rate reductions typically exert pressure on government bond and asset rates, elevating and enticing riskier assets. As a result, quicker rate reductions occasionally provide the necessary increase in Bitcoin prices.
Interest rate reductions by the Federal Reserve have an indirect impact on the price of Bitcoin. Investors seek higher yields in riskier assets like Bitcoin when the Fed reduces interest rates since traditional investments like bonds and savings accounts give lower returns.
Furthermore, Bitcoin is frequently seen as an inflation hedge. Rate reductions could be an indication of an effort to boost the economy, which could cause inflation worries and encourage some people to buy Bitcoin as a hedge.
Additionally, a period of reduced interest rates may devalue the US dollar, increasing the appeal of Bitcoin as a substitute asset. Rate reductions might increase risk appetite, but they can also be interpreted as an indication of economic weakness, which may lead investors to turn to safe havens like Bitcoin, though this isn’t always the case.
Also Read: Utah Passes Bill For State To Buy Bitcoin, Several U.S. States Join In The Move
Will Fed Lower Rate in Next Meeting?
The US Bureau of Labor Statistics reported previously that the US inflation print for December 2024 increased to 2.9% year over year from 2.7% in November.
The official report stated that US consumer prices increased somewhat more than expected in December due to rising prices for commodities connected to energy. However, for the year-over-year increase, the data remained consistent with market forecasts.
The US Fed’s goal of keeping core inflation below 2% may still take some time to achieve, as indicated by the somewhat higher-than-expected increase in the month-over-month inflation report.
In the upcoming year, this may need slower rate decreases, which would somewhat hurt the US economy. But if the year-over-year figures match market expectations, the Fed may decide to overlook the little higher-than-expected increase in order to finally cut rates even further.
Additionally, Donald Trump’s new administration has pledged tax cuts to stimulate the economy. The US economy may become even more resilient as a result.
Since the data point frequently aids in determining the trajectory of Bitcoin, cryptocurrency speculators typically maintain a careful watch on inflation prints.
Therefore, the chances of the Fed lowering rates in next meeting is low but not zero.
Also Read: Czech Central Bank Considers 5% Bitcoin Allocation From €140B Reserves