Bitcoin's price rose above $63,000 after Fed Chair Jerome Powell announced the central bank's decision to cut interest rates for the first time in four years.
The news sent shockwaves through the cryptocurrency market, with analysts predicting that the world’s largest cryptocurrency by market cap could see a new all-time high.
“There is a significant chance that we could see a price pump throughout the rest of the year and even push Bitcoin towards a new all-time high,” said Alice Liu, principal researcher at CoinMarketCap. She noted that historically, Bitcoin has rallied as much as 90% in the fourth quarter and that trend could repeat itself this year.
The Fed’s decision to cut interest rates by 0.5% to between 4.75% and 5% is aimed at stimulating the economy as inflation cools. Powell emphasized that the U.S. economy continues to stand on solid foundations and that this move is expected to encourage investment in riskier assets such as stocks and cryptocurrencies by lowering borrowing costs.
Bitcoin’s price movements are closely tied to liquidity conditions, and lower interest rates typically lead to increased liquidity. “Bitcoin is highly correlated to its liquidity environment, and this should support higher Bitcoin prices through the end of the year and beyond,” said Steven Lubka, head of Swan Private at Swan Bitcoin.
If Bitcoin breaks its all-time high of $73,000, it could further boost the entire crypto sector. With the market cap of cryptocurrencies sitting above $2.2 trillion, a new high for Bitcoin could trigger rallies in other assets as well.
However, market analysts warn that uncertainty surrounding the upcoming US elections could create volatility. The presidential race between former President Donald Trump and Vice President Kamala Harris is likely to affect Bitcoin’s trajectory. While Trump has publicly supported the cryptocurrency industry, Harris has not made her stance clear.
Bernstein analysts predict that a Trump victory could send Bitcoin soaring to $90,000 by the end of the year, while a loss could send prices plunging to $30,000.
Despite potential political hurdles, Greg Magadini, Director of Derivatives at Amberdata, believes Bitcoin remains a strong option. “While the election may create regulatory headwinds, monetary policy provides positive tailwinds, making Bitcoin the most likely winner,” he said.
*This is not investment advice.