A 0.50% Fed Rate Cut Could Raise Concerns for Bitcoin, 10X Research Advises
An aggressive rate cut by the Federal Reserve (Fed) may not be viewed positively for risk assets such as bitcoin, warns 10x Research. Traders currently estimate less than a 30% chance of a 50 basis point rate cut next week. While the recently released US jobs report has set the stage for an interest rate cut, 10x Research suggests that if the Fed cuts rates by 50 basis points on September 18, it may signal economic worry rather than reassurance, leading to a decrease in investor exposure to risk assets like bitcoin and stocks.
Typically, central banks opt for 25 basis point interest rate changes, but occasionally more significant moves are chosen to indicate a sense of urgency. During the 2022 tightening cycle, the Fed had implemented multiple 50 and 75 basis point hikes, resulting in risk aversion in financial markets. A 50 basis point rate cut next week could imply heightened economic concerns or a perception of falling behind the curve in managing the impending economic slowdown.
Markus Thielen, the founder of 10x Research, believes that while a 50 basis point cut by the Fed may signal deeper concerns to the markets, the primary focus of the central bank would be mitigating economic risks rather than managing market reactions. However, according to the FedWatch tool on the Chicago Mercantile Exchange (CME), the probability of a 50 basis point rate cut is currently around 30%, contradicting 10x Research’s view.
Thielen’s view aligns with the consensus among traditional market experts, including macro trader Craig Shapiro, who suggests that the Fed does not need to panic with a 50 basis point cut as the current economy does not necessitate it. Shapiro expects risk assets to correct until the central bank provides bigger reductions, indicating a reliance on the Fed’s actions.
Historically, the initial rate-cutting cycle has not always had a stimulative effect on asset prices, regardless of the size of the first move. Moreover, the expected easing by the Fed has been a significant factor driving bitcoin’s uptrend since January 2023, leading to speculation about whether the rate cut is already priced in.
In conclusion, a 0.50% Fed rate cut could raise concerns for bitcoin and risk assets, according to 10x Research. While traders estimate a lower probability of such a cut, the initial market reactions to the rate-cutting cycle are uncertain, and its impact on asset prices, including bitcoin, remains to be seen.