Bitcoin slips to $58K as Fed faces split rate cut expectations

• The Fed faces split rate cut expectations as markets price in 50% probability for both 25 bps and 50 bps move this Wednesday.

• Bitcoin has pulled back from above $60,000 amid rate cut uncertainty.

The coming week is shaping up to be that rare one when markets are left guessing about the Federal Reserve's impending interest rate move. The peak uncertainty seems to have put brakes on bitcoin's (BTC) price bounce.

The Fed is widely expected to announce an interest rate cut on Sept. 18, kicking off the so-called easing cycle, which has historically supported risk assets, including bitcoin.

Traders, however, are split on the size of the impending rate cut, setting the stage for a potential volatility explosion in financial markets after Wednesday's rate decision. At press time, the Fed funds futures showed a 50% chance of the Fed reducing rates by 25 basis points (bps) to the 5%-5.25% range. At the same time, markets saw a similar probability of a bigger 50 bps rate cut to the 4.7%-5% range.

Bitcoin's upward momentum from recent lows of $52,530 has stalled amid the rate cut uncertainty. The leading cryptocurrency by market value has pulled from $60,660 to $58,700, at the time of writing.

"Rarely has the market gone into the Fed meeting with maximum uncertainty (halfway between 25bps and 50 bps)," Marc Chandler, chief market strategist at Bannockburn Global Forex and author of "Making Sense of the Dollar," told CoinDesk in an email.

"I suspect a 50 bps cut would not be good for risk assets on ideas that the Fed is more concerned about the economy and would seem to be acknowledging that it should have cut in July," Chandler added.

Several analysts have warned that a 50 bps cut could signal panic, denting demand for riskier assets, including cryptocurrencies. The probability of a 50 bps cut rose last week after Wall Street's Journal's Nick Timiraos published an article the size of the rate cut was up for debate. A few Fed policymakers also raised the specter of a bigger move, bringing cheer to risk assets.

"The market had been settling on a 25 bps rate cut before what some suspect is a planted story by Fed officials to put 50 bps back on the table Thursday. The market took the bait and ratcheted up the odds of not only one, but two half-point cuts and a quarter-point cut in the three remaining meetings of the year," Chandler said, adding that traders should also keep an eye on the Fed's summary of economic and interest rate projections.

"The market is currently pricing in a sub-3% Fed funds target by the end of next year. Also, at 4.3% in July (4.2% in August), the unemployment rate is at the Fed’s long-term equilibrium level. Will this be changed?," Chandler quipped.

 

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