Fed rate decision will determine direction of BTC price

The key takeaways

• Bitcoin could be a beneficiary of a surprise Federal Reserve interest-rate cut, which would reduce the attractiveness of fixed income and push some money towards Bitcoin.

• Bitcoin is a beneficiary of loose monetary policies as excessive liquidity and macroeconomic conditions increase risk appetite.

BitcoinBTCIf the United States Federal Reserve delivers a shock cut below the current level of 4%, ) may rally over $140,000. Most market participants expect no changes in interest rates at today’s Federal Open Market Committee policy meeting. However, a slight reduction can lower fixed income returns, causing traders to seek out higher yielding assets and increase demand for them.

Fed Meeting comes amid strong macrodata and inflationeasing

CME FedWatch, which uses US Treasury Note pricing to calculate implied interest rates, says that 97% of the time, current levels will be maintained. What makes the situation unusual is that the meeting comes as macroeconomic data has been consistently strong — inflation As the economy has grown, so has its growth.

Bureau of Economic Analysis estimates that the US economy expanded by 3% annually in the 2nd quarter. The growth was a result of a spike in imports before President Trump’s inauguration. global trade war. In May, market sentiment was at its highest. Today the likelihood of an US recession in the year 2025 has dropped to just 17%.

The inflationary pressures are also lessened. The PPI (Producer Price Index) for June, released on July 16th, rose only 2.3% compared to a year ago. This is the lowest level since September 2024. CNBC stated that US import duties are only having a marginal impact on the economy. Fed officials continue to be cautious of possible downstream effects.

US President Trump has repeatedly criticised Fed’s monetary position, calling for Chair Jerome Powell cut rates as soon as possible. “No Inflation! Let people buy, and refinance their homes!” Powell urged. Yahoo Finance reports that Powell has not indicated he will change his course in the coming week.

Bitcoin’s growth is dependent on money supply, not just loose policies.

Bitcoin investors are generally in favor of a looser monetary regime, even though this depends on much more than just the Fed benchmark rate. The growth in the money supply is a major factor that influences the risk-on of assets, including cash, saving accounts, certificates, and money markets funds. Decisions made by the US Treasury on debt issuing also have an impact on M2.

A higher liquidity environment tends to benefit both the S&P 500 and Bitcoin, though the effect is often gradual. Rate cuts to 3.75% and 4% from each other could drive investors away from $25.4 trillion in government and corporate debt. bond markets. The fixed income advantage will diminish if inflation stays below 2.5%. This would make riskier assets more attractive.

Reduced interest rates reduce the borrowing costs of companies and individuals, thereby encouraging leverage. This increased liquidity stimulates economic activity, which in turn increases the willingness of investors to accept risk. Bitcoin has historically performed well in such periods, where more capital is readily available and the job market remains stable.

Related: Bitcoin momentum loss is pre-FOMC derisking, not a trend change

On first look, $140k Bitcoin seems ambitious. It would mean a 19% hike from current price of $117.600. This would still represent a market cap of $2.78 trillion, which is 87% less than the $22.5 trillion value for gold. Nvidia, the current world’s largest company with a $4.36 billion market cap, is a good comparison.

Bitcoin will be the largest beneficiary if a rate reduction occurs this Wednesday, even though the likelihood is very low. The S&P 500, already valued at $56.4 trillion, has far less room to gain from investors shifting out of fixed income.

The information contained in this article is meant to provide general knowledge and not as a legal or investment advisory. These are solely the opinions, views, and thoughts of the author and may not reflect the opinions and views of Cointelegraph.