The possibility of a 50bp rate cut by the Fed is off the table due to the U.S. CPI announcement – What’s the next move for BTC?
3 min readBitcoin’s price briefly plunged over 3% below $56,000 on Wednesday, halting the rally that started earlier this week, before bouncing back to the $58,000 level, showing rollercoaster-like movements. The volatile price curve of Bitcoin was a result of the U.S. Consumer Price Index (CPI) report for August.
The August CPI rose 0.2% month-on-month and 2.5% year-on-year, as expected by the market. However, core CPI increased by 0.3% month-on-month, exceeding the expected 0.2%.
US CPI Core (M/M) Aug: 0.3% (est 0.2%; prev 0.2%)
– CPI (M/M) Aug: 0.2% (est 0.2%; prev 0.2%)
– CPI Core (Y/Y) Aug: 3.2% (est 3.2%; prev 3.2%)
– CPI (Y/Y) Aug: 2.5% (est 2.5%; prev 2.9%)— LiveSquawk (@LiveSquawk) September 11, 2024
The data suggested that U.S. inflation is returning to the Federal Reserve’s 2.0% target. As a result, the possibility of a U.S. Fed rate cut later this month remains on the table. However, the chances of the Fed starting a rate-cutting cycle with a 50bps cut have significantly decreased. According to CME Group’s FedWatch tool, the probability of a 50bps rate cut this month dropped from 34% to 15% overnight.
This shift in market sentiment affected Bitcoin’s price and traditional risk assets like the U.S. stock market.
The S&P 500 dropped 1.4% early in the session, barely holding the 5,400 level, but rebounded to close 1.07% higher as market interpretation shifted. Multiple bearish catalysts seem to have weakened risk sentiment, causing volatile market reactions.
Presidential debate: Harris won
Kamala Harris, the Democratic presidential candidate and current U.S. Vice President, was widely regarded as the winner of yesterday’s televised debate against Republican candidate Donald Trump.
Among the two, Trump is seen as the more crypto-friendly candidate, particularly toward Bitcoin. According to decentralized political prediction market Polymarket, prior to the debate, Trump had a 53% chance of winning the election, compared to Harris’s 45%. However, after the debate, the odds evened out at 49% for both.
World's largest prediction market.
Before the debate After the debate pic.twitter.com/p1KjOOFZU1
— i/o (@eyeslasho) September 11, 2024
Meanwhile, the Japanese yen hit a new annual high after remarks from Bank of Japan policymakers hinting at a rate hike. The yen’s strength has been a destabilizing factor for risk assets since early July. Japan’s potential rate hike is putting psychological pressure on investors involved in the yen carry trade, which involves borrowing low-interest yen to invest in higher-risk assets.
Will BTC face headwinds? The Next Move for Bitcoin
Several factors are still pointing downward for Bitcoin. Harris’s potential victory might not be entirely bad for the overall crypto market. Her campaign has hinted at a more open attitude toward cryptocurrencies, possibly reversing the current Biden administration’s anti-crypto stance.
However, it wouldn’t be as favorable for the market as a Trump victory. Trump has publicly praised Bitcoin’s benefits and even promised never to sell the BTC he holds.
Thus, news of Harris’s rising election chances could dampen investor sentiment around Bitcoin.
Macro factors may also apply downward pressure on Bitcoin in the near future. While the Fed is expected to begin a rate-cutting cycle soon, concerns about a U.S. economic recession are high, with some arguing that the Fed may be too late to prevent it. If U.S. macroeconomic data continues to signal a looming recession, Bitcoin’s price could be negatively affected as well.
Meanwhile, the yen is expected to remain strong as the Bank of Japan continues its rate hikes, which could also have a negative short-term impact on Bitcoin.
Technical indicators are also bleak. Bitcoin failed to reclaim the 50-day and 200-day moving averages in August, showing that the market is still dominated by bearish sentiment. There’s still a chance that the August low below $50,000 could be retested. In the worst-case scenario, if the U.S. enters a recession, Harris wins the election, and the yen continues to strengthen, Bitcoin could face a drop to as low as $40,000.
A Buying Opportunity?
For investors who believe in Bitcoin’s long-term outlook, this could present a great buying opportunity at lower prices.
Moreover, if U.S. interest rates return to around 2% or lower, it would create a favorable liquidity environment for Bitcoin in the long run.
The possibility of Bitcoin reaching $100,000 by 2025 remains valid.
