Bitcoin Price Drop Predicted by Bitfinex After Interest Rate Reduction

The price of Bitcoin experienced a decline on Monday, dropping to $57,100 after reaching a one-month high of $65,000 on August 25th. The upcoming decision by the US Federal Reserve to reduce interest rates could pose further challenges for the leading cryptocurrency in the market.

Bitfinex Alpha’s recent report suggests that September’s interest rate determinations may have a significant impact on both the short-term volatility and long-term trajectory of Bitcoin. The cryptocurrency has seen a 32 percent increase since early August, primarily driven by traders anticipating accommodative statements from the Federal Reserve.

Anticipated rate cuts of 25 basis points could indicate the initiation of an easing cycle, potentially boosting liquidity and leading to long-term price appreciation for Bitcoin. Conversely, a more aggressive 50 basis point cut might trigger an immediate price surge but could also prompt a subsequent correction as concerns about a recession resurface.

Current trading trends reveal that spot holders are reducing risks while perpetual market speculators are attempting to capitalize on buying opportunities. Notably, there is substantial open interest in Bitcoin perpetual contracts.

However, the report warns that a rate cut could result in a 15-20 percent price decline for Bitcoin, potentially stabilizing between $40,000 and $50,000. This forecast is based on historical data showing diminishing peak returns by approximately 60-70 percent in each cycle, along with reduced average corrections during bull markets.

September historically proves to be a volatile month for Bitcoin prices, with an average return of -4.78 percent and typical peak-to-trough declines of around 24.6 percent. Additionally, Bitcoin’s correlation with traditional risk assets, such as the S&P 500, is increasing, indicating that its price movements will mirror broader macroeconomic conditions.

The global economic landscape also plays a crucial role, with actions by central banks like the European Central Bank, Japan, and the People’s Bank of China potentially impacting the cryptocurrency market. In the US, ongoing disinflation is evident, driven by strong household consumption and wage growth outpacing inflation rates.

While the Federal Reserve’s preferred inflation gauge, the PCE index, rose by 2.5 percent in July, recent upward revisions to GDP growth for the second quarter, currently at a 3 percent annual rate, alleviate concerns of an economic slowdown. Challenges persist in the housing market, with pending home sales hitting record lows despite declining mortgage rates.

On the regulatory front, there is a growing trend of political engagement with cryptocurrency regulation, notably highlighted by presidential candidate Donald Trump’s strategy to position the US as a global crypto leader, particularly through involvement with the World Liberty Financial decentralized finance project. Additionally, the 24X National Exchange has proposed a 24/7 trading platform for cryptocurrency ETFs, seeking regulatory approval to enhance market accessibility.

At the time of writing, the Bitcoin price had rebounded to $59,270 after dropping towards $57,000 on Monday.