Analysts caution of potential 20% decrease in Bitcoin value

Bitcoin could potentially see a significant drop of up to 20% in value, according to analysts at Bitfinex, who are cautioning investors about the impact of the Federal Reserve’s upcoming interest rate decision. The future trajectory of the cryptocurrency is closely tied to the Fed’s interest rate policy, and market experts are closely watching for any signals from the central bank.

A recent research report by Bitfinex analysts, released on September 2, highlighted that Bitcoin’s recent surge of 32% was largely driven by expectations of a dovish stance from the Federal Reserve. However, they pointed out that the anticipated rate cut could have a substantial impact on both the short-term volatility and long-term direction of Bitcoin.

The analysts suggested that a 25 basis point rate cut could mark the start of an easing cycle, potentially leading to a rise in Bitcoin’s value over the long term as liquidity increases and concerns about a recession subside. On the other hand, a more aggressive 50 basis point cut might initially boost prices but could trigger a correction if fears of an economic downturn intensify.

Recent market dynamics have been shifting, with spot holders reducing risk exposure while perpetual market speculators are looking to capitalize on potential price dips, as indicated by a notable increase in long open interest on BTC perpetuals.

Looking ahead, analysts are forecasting a possible 15-20% decline in Bitcoin’s value post-rate cut, with a projected price range of $40,000 to $50,000. Historical data suggests that peak returns in each cycle typically decrease by 60-70%, accompanied by smaller corrections during bull markets. However, the analysts emphasized that external economic factors could swiftly change this outlook.

September has historically been a volatile month for Bitcoin, with an average return of -4.78% and peak-to-trough declines of around 24.6%. The analysts highlighted the potential risks associated with this volatility, including the possibility of a “sell-the-news” reaction following the rate cut, which could present both challenges and opportunities for traders.

The Federal Reserve is scheduled to convene on September 17 and 18, with most analysts anticipating a rate cut. However, the extent of this adjustment remains uncertain, given the current economic landscape characterized by moderate disinflation and robust consumer spending. Market participants will be closely monitoring the Fed’s decision and its implications for Bitcoin and the broader financial markets in the coming weeks.