Bitcoin (BTC) Surges to $61,000 Following a 50 Basis Point Rate Cut by the U.S. Federal Reserve

The largest cryptocurrency is down 0.15% in the past 24 hours. U.S. equities also moved higher as Nasdaq and S&P recorded gains between 0.6%-0.8%.

The U.S. Federal Reserve announced a 50 basis point (bps) cut to its benchmark fed funds rate on Wednesday, bringing the rate to 4.75%-5%. This marks the first interest rate cut in four years, following the Fed's most aggressive hiking cycle.

The press release from the Federal Open Market Committee (FOMC) highlighted its growing confidence in inflation moving sustainably toward the 2% target and an assessment of balanced risks to its employment and inflation goals.

"The Committee is attentive to the risks to both sides of its dual mandate and will continue to assess incoming data and adjust the stance of monetary policy as needed to achieve its objectives," the press release stated.

The Fed members' median benchmark rate projections indicate a decrease to 4.4% by year-end, suggesting an additional 50 bps in cuts during the next two FOMC meetings. This is an increase from the single cut projected in June.

Apart from the emergency rate cuts during Covid, the FOMC last cut rates by half a point in 2008 during the global financial crisis.

The matrix of individual officials’ projections also suggests another full percentage point in cuts by the end of 2025 and a half-point by 2026. Overall, the dot plot shows the benchmark rate decreasing by about 2 percentage points beyond Wednesday’s move.

Bitcoin (BTC) price reacted with a brief surge of 1.4% to $61,000 following the FOMC decision, before trimming its gains. The largest cryptocurrency was trading down 0.15% over the past 24 hours.

U.S. equities moved higher on Wednesday as the Nasdaq and S&P recorded gains between 0.6%-0.8%.

Among cryptocurrency-related stocks, MicroStrategy (MSTR) rose 3.77% during the day, while shares of crypto exchange Coinbase (COIN) and investment firm Galaxy (GLXY) gained 2.1%-3%.

Markets largely anticipated the easier monetary policy stance starting in September, after Chairman Jerome Powell stated last month that "the time has come for policy to adjust" in light of cooling inflation and a rising unemployment rate.

However, there was uncertainty regarding the magnitude of the rate cut, with traders debating between 25 bps and 50 bps. Prior to Wednesday’s decision, the CME FedWatch Tool indicated a 40% probability for a smaller cut and a 60% chance for a bigger one.

This uncertainty could lead to a volatile session, as noted by crypto market maker Wintermute, which predicted bitcoin to swing 2%-3% in either direction after the decision.

Arthur Hayes, co-founder of BitMEX, highlighted the potential for the Fed's rate cuts to crash markets due to shrinking borrowing rate differentials between the U.S. dollar and Japanese yen, which could lead to investors unwinding yen-based carry trades, an event that may have contributed to the August 5 crash, which briefly pushed BTC below $50,000.

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