Fed Cuts Interest Rates by 50 Basis Points, Bitcoin Briefly Hits $61K Before Sell-Off

In a move widely anticipated by market participants, the U.S. Federal Reserve lowered its benchmark interest rate by 50 basis points, dropping it to a range of 4.75%-5%. This marks the first rate cut in four years, following one of the most aggressive hiking cycles seen in recent times. The decision sparked immediate reactions in the financial markets, particularly within the cryptocurrency sector.

Bitcoin (BTC) briefly surged to $61,000 following the announcement, before quickly retreating below the $60,000 mark as traders began to sell off positions. This volatility mirrored broader market uncertainty about the size of the rate cut leading up to the Federal Open Market Committee (FOMC) meeting, where traders had been split on whether the Fed would opt for a smaller 25-basis-point cut or the larger 50-basis-point move.

The Fed’s official statement indicated growing confidence that inflation is nearing the central bank’s 2% target. However, it acknowledged an uncertain economic outlook and reiterated its commitment to a balanced approach toward achieving both employment and inflation goals. Fed Chair Jerome Powell, speaking during a press conference following the meeting, emphasized that the rate cut was not an indication of a more aggressive easing cycle to follow. He noted that while inflationary pressures are cooling, the Federal Reserve is not declaring victory just yet.

Market Reactions: Bitcoin and Beyond

Immediately after the FOMC decision, Bitcoin surged by 1.2%, briefly touching $61,000 before sliding back below $60,000, reflecting the mixed sentiments in the market. This price movement coincided with similar reactions in other asset classes. The S&P 500 and the Nasdaq 100 erased earlier gains, closing down by 0.3%, while gold experienced an initial rally to a new all-time high of $2,600 before giving up those gains to finish in the red.

The U.S. Dollar Index (DXY), a key indicator for risk assets, dipped to 100.3, its lowest level since July 2023, before rebounding to 101. This swing in the dollar’s value further added to the volatility in cryptocurrency and equity markets. Analysts noted that the dollar’s fluctuations could continue to influence Bitcoin’s performance, as a weaker dollar often drives capital into alternative assets like gold and cryptocurrencies.

Cryptocurrency-related stocks were also affected by the Fed’s decision. MicroStrategy (MSTR), one of the largest holders of Bitcoin, saw a modest 1.5% increase during the day, while shares of Coinbase (COIN), Galaxy Digital (GLXY), and leading Bitcoin miners like Marathon Digital (MARA) and Riot Platforms (RIOT) remained flat to slightly negative by the close of trading.

Looking Ahead: Further Rate Cuts Expected

The market is now focusing on the Fed’s future moves, with many expecting further rate cuts before the end of the year. According to the Fed’s quarterly economic projection, members expect the median benchmark rate to come down to 4.4% by year-end, which would imply another 50 basis points in cuts during the next two FOMC meetings.

On platforms like Polymarket, traders are betting heavily on continued monetary easing, with a 41% chance of a 100-basis-point total cut by the end of the year, and a 38% chance of an even more aggressive 125-basis-point reduction. For the November meeting, traders see a 65% chance of another 25-basis-point cut, while December’s consensus predicts another 50-basis-point cut could be on the table.

Despite these expectations, market watchers remain divided on the sustainability of Bitcoin’s recent rally. Some analysts argue that a 50-basis-point cut signals underlying economic weakness, which could trigger a deeper correction in risk assets like Bitcoin. Wintermute, a crypto market maker, had predicted 2%-3% price swings for Bitcoin in either direction following the Fed’s decision, underscoring the volatility still present in the market.

Key Takeaways: Mixed Sentiments and Uncertainty Ahead

While the Fed’s decision to cut rates by 50 basis points briefly boosted Bitcoin and other risk assets, the broader market remains cautious. Traders are wary of the potential long-term implications of further rate cuts, especially in light of global economic uncertainties and inflationary pressures. With more Fed meetings on the horizon and additional cuts likely, Bitcoin’s path forward could see continued volatility, influenced by both macroeconomic factors and investor sentiment.