Bitcoin, the world’s largest cryptocurrency, experienced a sharp drop of over 7% last week, continuing its decline from a one-month high of $65,000 reached on August 25th. With the US Federal Reserve’s decision on interest rates imminent, the cryptocurrency market is bracing for potential price shifts. 

While a rate cut could push Bitcoin’s price up, analysts at Bitfinex predict a possible price correction due to growing recession fears.

Upcoming Fed’s Rate Cut Decision 

According to a recent report from Bitfinex Alpha, the Federal Reserve’s upcoming decision on interest rates could play a crucial role in Bitcoin’s short-term volatility and long-term outlook. With Bitcoin already up over 32% since early August, much of the recent gain has been fueled by expectations of a more positive Fed stance.

If the Fed implements a 25 basis point rate cut, it could signal the beginning of a more relaxed monetary policy, potentially boosting Bitcoin’s price and increasing market liquidity. 

On the other hand, a more aggressive 50 basis point cut might cause an immediate surge in Bitcoin’s price but could also lead to a sharp correction as recession concerns come back into focus.

Concerns Over Market Correction

Current market trends show a division among Bitcoin traders. Spot holders are taking profits and reducing their positions, while those in the perpetual market are capitalizing on lower prices, betting on a price recovery. 

Despite this, there is significant concern that a rate cut could trigger a 15-20% decline in Bitcoin’s price, with potential lows between $40,000 and $50,000. 

Bitfinex’s forecast indicates that in the past, the highest returns on Bitcoin have usually dropped by 60-70% in each cycle. Also, during bull markets, the usual price drops tend to be smaller.

Recession Fear Mounts On Crypto 

Apart from this, the growing concern about a recession is adding to the negative sentiment, with expectations of a potential price correction. The U.S. Treasuries yield curve indicates a 50% chance of a recession occurring within the next 12 months.

Adding to the bearish sentiment is September’s historical performance, which has often been volatile for Bitcoin. The cryptocurrency has an average return of -4.78% in September, with typical declines from peak to trough around 24.6%. 

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