Potential 20% Bitcoin Price Decrease Possible with Federal Reserve Interest Rate Cut, Warns Bitfinex

Bitcoin analysts at Bitfinex are predicting a potential 20% drop in the price of the largest cryptocurrency in the world if the U.S. Federal Reserve cuts interest rates for the first time in four years later this month. The firm highlighted a positive correlation between bitcoin and traditional asset classes like U.S. equities, suggesting that global economic conditions will likely continue to impact bitcoin’s price in the near term.

Various factors are contributing to the anticipated shift in bitcoin prices, including indications of decreasing inflation, signs of a weakening job market, and a recent statement from Federal Reserve chairman Jerome Powell signaling upcoming rate cuts. Powell emphasized the need for policy adjustments, stating that the timing and pace of rate cuts would depend on incoming data, the evolving economic outlook, and risk assessments.

Although bitcoin has historically shown weaker performance in September, Bitfinex analysts emphasized that an unfavorable outcome is not certain and positive price momentum remains a possibility. September has typically been a volatile month for bitcoin, with an average return of 4.78% and a typical peak-to-trough decline of 24.6%. This volatility is often attributed to reduced trading activity during the end-of-summer period as fund managers return from vacation and human-driven trading picks up. The anticipated rate cut in September adds another layer of complexity, potentially heightening market volatility.

The analysts noted that historical price trends for September align with their projection of a 20% price drop in bitcoin following a rate cut. However, they acknowledged that historical patterns also indicate instances where September, despite a negative August, delivered positive returns. This historical data suggests that while a drop in bitcoin prices following a rate cut is plausible, there are instances where September has defied expectations and yielded positive outcomes, challenging the assumption of a bearish month for bitcoin.