“Is Now the Time to Sell Bitcoin? Economist Warns of Drop”

Market participants are looking forward to the upcoming Federal Open Market Committee (FOMC) meeting, which is anticipated to significantly influence the near-term outlook for Bitcoin and other digital currencies. The focus is on the possibility of an interest rate cut, a topic that numerous traders and investors have been contemplating for an extended period.

While the precise extent of any rate cut remains uncertain, there is widespread speculation that the FOMC might choose either a 25-basis point reduction or a more significant 50-basis point cut. A leading economist has suggested that the FOMC’s decision could either spark a sell-the-news scenario for high-risk assets like Bitcoin or provide them with a rally.

Economist Foresees Major ‘Sell The News’ Event

In a recent interview with The Block, Steve Hanke, an economist from Johns Hopkins University, shared his insights on the potential effects of the U.S. Federal Reserve’s expected interest rate cut on the cryptocurrency market. According to Hanke, a 25-basis-point reduction—widely anticipated by investors—could ultimately lead to a ‘sell-the-news’ event across the cryptocurrency landscape.

He elaborated that the market has already factored in the likelihood of such a decrease, which has influenced the price movements of various investment assets. In fact, following the official announcement of the cut, the market’s response might be tepid, potentially inducing a wave of sell-offs in the crypto space.

Contrary to the more expected 25-basis-point cut, Hanke noted that the prospect of a 50-basis-point reduction by the Federal Reserve hasn’t been fully integrated into the market yet. Therefore, a 50-basis point cut could unexpectedly “uplift the market.”

What To Anticipate Ahead of the Upcoming FOMC Meeting

Inflation in the United States is gradually easing, with Federal Reserve Chair Jerome Powell indicating last month that “the time has come” for interest rate reductions. The current rate points are set between 5.25%-5.50%, marking the highest levels in the last 23 years. Within the context of the Federal Open Market Committee (FOMC), rate points refer to adjustments in the federal funds rate. The Fed’s adjustments to interest rates primarily aim to stimulate economic growth and manage inflation.

A decrease in the Fed’s interest rates could, theoretically, create a conducive environment for cryptocurrencies. Lower rates mean that traditional savings and fixed-income investments (like bonds) yield lesser returns, leading risk-averse investors to consider cryptocurrencies as alternatives.

However, assessing the market’s reaction to a rate cut is not straightforward as of now. This complexity arises because the expected rate cut has already contributed to Bitcoin’s price increase earlier this year, fueling debates about whether the cut is already reflected in the current price.

At the moment, Bitcoin is priced at roughly $60,000, reflecting a 3.5% rise in the past 24 hours.