5 min readBitcoin prices rose on Wednesday amid optimism that the Federal Reserve will start to cut interest rates and as capital flows into spot Bitcoin ETFs improved.
Bitcoin trades 3.8% higher, rising above $60,000 as investors position themselves for a lower interest rate environment.
The Federal Reserve is expected to cut rates today for the first time in four years, signaling the start of a rate-cutting cycle that could see the central bank reduce interest rates by 100 basis points before the end of the year.
The market is undecided over whether the Federal Reserve will cut rates by 50 basis points or 25 basis points at today’s meeting.
According to the CME Fed watch tool, the market is pricing in a 63% probability that the Fed will cut rates by 50 basis points and a 37% probability that the US central bank will reduce rates by 25 basis points.
There are arguments both for and against a 25- and a 50-basis-point cut. The uncertainty surrounding the pricing means that the decision will likely spark heightened volatility in the market.
Risk assets such as Bitcoin often perform well in a low-interest-rate environment. Lower rates free up liquidity, which can then be invested in riskier assets such as crypto or stocks.
Four years ago, when the Fed last cut interest rates to support the economy from the Covid pandemic shock, Bitcoin went on to reach record highs. However, the bullish response from Bitcoin and other risk assets would be contingent on the US continuing to navigate towards a soft landing. Any sense that the US economy could fall into recession would likely negatively impact the Bitcoin price.
With this in mind, the market will be watching Fed Chair Powell’s press conference closely following the rate announcement. The Fed’s revised dot plot will also provide clues over how many rate cuts to expect this year and next.
Bitcoin ETF’s inflows
On Tuesday, Bitcoin ETFs attracted a total of $187 million in inflows, coinciding with the Bitcoin price reclaiming the $60,000 psychological level.
When these figures are broken down, the Fidelity-Wise Origin Bitcoin fund led with inflows of $56.6 million, and the Bitwise Bitcoin ETF came in second with $42.2 million worth of inflows.
Meanwhile, BlackRock’s ishare Bitcoin ETF now holds more than $21 billion worth of Bitcoin, although it notably saw 0 flows on Tuesday despite some of its peers seeing decent figures. BlackRock had been ahead in the Bitcoin ETF race since the product debuted in January; however, more recently, it has underperformed.
However, more broadly, the return of spot BTC inflows marks a pivotal point in sentiment after the uncertainty surrounding the US presidential election, interest rates, and fears of a recession weighed heavily on crypto prices at the start of this month.
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