The US Federal Reserve (Fed) cut interest rates for the first time this year, by 25 basis points (0.25%). Following the announcement, gold prices dropped nearly 30 USD per ounce as investors sold off holdings. US stock markets saw mixed reactions: the Dow Jones Industrial Average rose by 0.6%, while the S&P 500 and Nasdaq Composite fell by 0.1% and 0.3% respectively.
Bitcoin (BTC) also reacted passively in the cryptocurrency market. The world’s largest cryptocurrency, which had been trading in the 116,000-117,000 USD range last week, quickly dropped below 115,000 USD per unit within minutes of the announcement. Since then, BTC has consistently traded lower than during the same period of the previous trading session.
The total cryptocurrency market capitalization remains above 4 trillion USD, down less than 1% in the past 24 hours, while the average performance of the top 20 cryptocurrencies has dropped by 0.43%, according to CoinMarketCap data. There has been no apparent FOMO (fear of missing out) following the Fed's easing of policy. The cryptocurrency Fear and Greed Index currently sits at a neutral 51 points, down 6 points from last week.
Interest rate cuts typically boost the price of risk assets. However, the market seemed to have already priced in this move weeks ago.
According to Decrypt, Fed Chair Jerome Powell described the rate cut as a "risk management" measure rather than a move to bolster a weakening US economy. This might partially explain the muted response from the cryptocurrency market.
With a 96% chance of a 25-basis-point cut already priced in before the official announcement, traders appear to have employed the classic "buy the rumor, sell the news" strategy. This strategy involves investors buying assets when positive market rumors emerge and holding them in anticipation of future price increases, only to sell when the official news is released. This trading strategy is quite common with risk assets like stocks, cryptocurrencies, and real estate.
The political wrangling surrounding the Fed’s decision added another layer of uncertainty to market sentiment. Newly appointed Governor Stephen Miran—an economist and supporter of former President Donald Trump, whom he advised during his previous term—was the only policymaker to vote against the 0.25% rate cut. He favored a 50-basis-point cut, aligning with analysts' predictions. However, the Fed Chair pledged a "strong commitment to maintaining its independence".
Analysts suggest the Fed may remain uncertain about its monetary policy for the remaining months of the year, depending on US inflation and employment data. According to Matt Mena, a cryptocurrency research strategist at 21Shares, the risk of repricing is now central, creating an asymmetric backdrop for BTC.
"The 25 basis point cut is just a spark; the Fed's hesitation will challenge Bitcoin in conquering new highs by the end of this year," he added.
Gerry O'Shea, head of global market research at digital asset management firm Hashdex, noted Bitcoin's "muted" response to the Fed's announcement but remains confident that corporate demand and inflows into ETFs could drive BTC's price higher in the coming period. "These factors, along with market confidence in the possibility of interest rate adjustments, could push Bitcoin to higher highs in the coming weeks," he predicted.
Bitcoin is currently only about 7% higher than its previous post-US election peak, while the S&P 500 has risen by 9% and gold has seen a 36% increase in the same period. From a technical perspective, BTC is more "compressed" than stocks and gold, making it potentially poised to lead the next rally.
Tieu Gu (according to CoinDesk, Decrypt)
