Bitcoin and US stocks climb as expectations for Fed rate cut heat upBitcoin (BTC) and US stocks were trending higher in early trading on Tuesday as Wall Street's expectations for a 50-basis-point rate cut from the Federal Reserve now stand at 63%. The size of the rate cut has been the focus of intense debate over the past week, as data has been mixed but has shown a clear indication that inflation continues to moderate toward the Fed's 2% target, while US consumers are showing resilience despite higher living costs
Bitcoin and US stocks climb as expectations for Fed rate cut heat up
Bitcoin (BTC) and US stocks were trending higher in early trading on Tuesday as Wall Street's expectations for a 50-basis-point rate cut from the Federal Reserve now stand at 63%. The size of the rate cut has been the focus of intense debate over the past week, as data has been mixed but has shown a clear indication that inflation continues to moderate toward the Fed's 2% target, while US consumers are showing resilience despite higher living costs.
"Investors are caught off guard by the sudden shift in expectations surrounding tomorrow's rate cut," said David Morrison, senior market analyst at TradeNation. "As recently as Wednesday of last week, the probability of a 25-basis-point cut was 87% following the relatively mild CPI update. But comments from former New York Fed President Bill Dudley spurred a significant and unexpected shift in expectations, where he expressed support for a larger cut. The CME's FedWatch tool now pegs the likelihood of a 50-basis-point cut at [63%], while the probability of a smaller cut has fallen to [37%]." He pointed out, "It's extremely rare to see this level of uncertainty heading into a Fed meeting." "Usually around the mid-90s you see a likelihood in favor of a particular outcome. This suggests that there could be considerable volatility after the announcement, which could be accentuated by the simultaneous release of the Federal Open Market Committee's quarterly Summary of Economic Projections, including the 'dot plot.' This shows individual FOMC members' forecasts for the federal funds rate over the remainder of the year and beyond."
Morrison warned, "Given that investors are currently forecasting as much as 125 basis points of cuts this year, while the Fed Funds target is for 3% cuts by the end of 2025, the dot plot may show a significant gap between investor expectations and the FOMC." "If that's the case, Fed Chairman Jerome Powell will have to be at his best during the subsequent press conference to quell any turmoil."
While the size of the rate cut is still uncertain, the fact that Wall Street is pricing in a 100% chance of a cut has helped to boost risk assets, including Bitcoin, which rose above $60,000 as bulls seek to reclaim ground lost since Sunday. Concern about a potential 50-basis-point cut has some analysts concerned that the Fed sees something worrying in the economy and is trying to exit early without scaring investors, prompting some to take a closer look at Bitcoin and gold's role as a store of wealth in a recession.
"Current macroeconomic trends have sparked a significant divergence between Bitcoin and gold," said Maruf Yusupov, co-founder of the Deenar gold-backed stablecoin project. "While Bitcoin tumbled to $57,578.35 amidst volatile swings, gold prices have remained positive, reaching $2,579.21." He pointed out, "The reasons behind the Bitcoin trend are not far-fetched and hinge on the uncertainty surrounding the Fed's likely interest rate cut." "While the rate cut holds a potential positive outlook for the overall market, investors remain cautious about the prevalent uncertainty."
Yusupov said, "The price and valuation trends for both Bitcoin and gold over the past month have shown that the correlation between the two assets has widened." "While Bitcoin has fallen by over 3% in the last month, down over 21% from its all-time high of $73,750.07, gold has risen over the past month. The precious metal even tested a new ATH of $2,589 last month and has gained over 3% in value in the past 30 days." He added, "Another major trend in both assets over the past month has been the surge in outflows from their major ETF products."
"Amidst signs of economic turmoil, investors are mostly betting on the preservation of capital. Golds limited volatility makes it an attractive alternative for hedging against potential uncertainty." Yusupov said, "This shift has seen Bitcoin ETF products recently shed intense capital, with BlackRock surprisingly joining the outflow trend." "Other crypto assets havent been spared from these capital outflows. While its still premature to say traditional investors are shifting to gold, market data overwhelmingly supports the theory." He concluded, "For now, the two assets have decoupled, further strengthening the decoupling seen in the past few weeks by the two assets."
Bitcoin is currently trading at $61,278, up 5.9% on the 24-hour chart.
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