The bitcoin market is looking cautious about its next move as speculations over the Federal Reserve’s take interest rate cut looms.
The bitcoin-to-dollar exchange rate on Wednesday surged a decent 1.43 percent to establish an intraday high of $9,201 on CoinStats cryptocurrency portfolio tracker app. At the same time, bitcoin’s market valuation rose to as high as $163.65 billion.
The move closely followed a depressive action noted yesterday, in which the bitcoin price dropped by as much as $400. The downside itself came in the wake of Facebook, which unveiled the technical paper of its upcoming cryptocurrency and payment service.
Nevertheless, as the Facebook trend fades, the bitcoin market has a lot to worry about the Federal Reserve’s impending decision on the interest rate. The US central bank chairman, Jerome Powell, is set to announce his decision today at 2 PM ET.
US President Donald Trump has indirectly threatened to demote Powell if he increases the rates. The political pressure follows seven rate hikes in 2017 and 2018, which, as Trump believes, trampled the US economic growth.
Meanwhile, traders have given 80 percent approval to a fed rate cut next month. The sentiment has taken the benchmark S&P 500 Index 6 percent higher. The index was severly down in May following the renewed trading conflicts between the US and China.
At the same time, Dow Jones Industrial Average and Nasdaq Composite are also up by 6 percent in June.
Impact on Bitcoin
A rate cut could spell a bearish curse on bitcoin – at least in the near-term.
Investors would more likely move their capital from the cryptocurrency market to the mainstream stocks, given the S&P’s history of rising at least 21 percent following most of the rate cuts. Situations such as these would hurt bitcoin, meaning the cryptocurrency would correct massively.
Nevertheless, the rate cut fundamental does not always abide by the bulls. Data compiled by Barclays shows that the S&P 500 averages a loss of about 17 percent when the Fed cuts rates to tackle recession.
“The previous two times the Fed cut rates for the first time in 2001 and 2007, we saw stocks eventually get cut in half. But the reality is if you go back further in time, you can also see explosive rallies after that first cut.”said Ryan Detrick, senior market strategist at LPL Financial.
Today’s Fed meeting comes amidst a worsening economic crisis which explains that a rate cut would not exactly assist the US stocks in long-term.
That means investors will likely scalp out their profits from the mainstream markets and hedge them back to haven assets, such as the US dollar, Gold, and Bitcoin.