Report suggests potential for Bitcoin price drop due to US dollar weakness

Economists caution investors to prepare for a potentially turbulent journey ahead as they foresee a weakening US dollar that could potentially impact Bitcoin. The cryptocurrency, which surged at the beginning of the year from $44,187.14 to $59,130.31, has experienced a decline since late August, raising concerns among analysts.

Analysts from the Bitfinex crypto exchange highlighted that September historically tends to be a volatile month for Bitcoin, with an average return of 4.78% and a typical peak-to-trough decline of 24.6%. Investors are closely watching the Federal Reserve’s two-day meeting in September, hoping for rate cuts to support the economy. However, if these cuts materialize, Bitcoin’s value could drop below $40,000, according to Bitfinex analysts.

The potential rate cuts could exacerbate Bitcoin’s volatility, particularly during the end-of-summer trading lull. Federal Reserve Chair Jerome Powell’s dovish stance during his Jackson Hole speech led to a further decline in the US dollar, which has been struggling against major global currencies.

Neil Roarty, an analyst at Stocklytics, noted the significant shift in the dollar’s performance, emphasizing its decline to 2024 lows against currencies like the euro, pound, and yen. The Federal Reserve’s consideration of more rate cuts than initially anticipated follows a series of pandemic-induced rate hikes that pushed rates to 23-year highs.

Roarty suggested that interest rates might drop faster than expected, possibly by up to 100 basis points by the year’s end. He advised investors to monitor the reactions of other central banks, such as the European Central Bank, the Bank of England, and the Bank of Japan, to gauge potential currency volatility ahead.

Markus Thielen, the chief executive of 10x Research, expressed caution about the current state of digital assets, citing a potential tipping point in September due to declining demand. However, some analysts believe that Bitcoin’s historically poor September performance could be offset by rate cuts, making it an appealing alternative if the dollar weakens.

Innokenty Isers, founder of UK-based crypto exchange Paybis, highlighted the potential impact of rate cuts on Bitcoin’s appeal as a risk asset with higher growth potential amid a weakening dollar. He emphasized the importance of monitoring the evolving market dynamics and the potential for increased demand for Bitcoin in light of these changes.

The approval of spot Bitcoin exchange-traded funds (ETFs) earlier this year by the Securities and Exchange Commission has further bolstered Bitcoin’s prospects. These ETFs, offered by firms like Blackrock and Fidelity, have been instrumental in driving Bitcoin prices and could play a significant role in shaping its performance in September.