10x Research cautions an aggressive U.S. Federal Reserve rate cut as a signal of economic worry, not reassurance, weighing over Bitcoin and other risk assets.
In a September 9th note to clients, 10x Research CEO Markus Thielen warned that the supposedly bullish liquidity easing cycle may kick off on a sour note for risk assets.
While a 25 basis point cut is seen as the more favorable outcome, possibly leading to long-term price appreciation for Bitcoin as liquidity increases and recession fears ease, a more aggressive cut could have an adverse effect.
A 50 basis point cut could “signal deeper concerns to the markets,” indicating a lapse in combating the impending economic slowdown. This might cause investors to reduce their exposure to risk assets like Bitcoin.
Something Thielen highlighted as no obstacle to the Fed’s decision, as their “primary focus will be mitigating economic risks rather than managing market reactions.”
While traders currently place the probability of a 50 basis point cut at 29%, according to CME’s fed watch tool, 10x Research cautions this, citing it to contrast their view of the “prevailing consensus.”
Weak Jobs Data Fuels Recession Fears
Recession concerns gained traction in early August when the Sahm Rule Recession Indicator, which tracks economic downturns, jumped to 0.53 from 0.43 following weak July U.S. jobs data, signaling a warning of a looming recession.
In the wake of the release of August’s weak jobs report, these fears have been exasperated. According to FRED data, the Sahm Rule Recession indicator has jumped higher to 0.57. 10x Research commented:
The chorus is growing louder that the Fed is behind the curve, having missed signs of labour market weakness after being caught off guard in July.
However, other analysts cite the weak jobs data as no obstacle. Alianza advisor and former Pimco CEO Mohamed El-Erian commented that the latest numbers remain consistent with his belief that the US economy will avoid a recession.
Especially after the excitement of a month ago, when analysts and economists suddenly jacked up their probability of an economic recession, this morning’s (August) US jobs report comes as a relief… that is unless you were absolutely convinced that the Federal Reserve would cut…
— Mohamed A. El-Erian (@elerianm) September 6, 2024
Bitcoin Could Face a 20% Decline Under an Aggressive Rate Cut
In a September 2nd report from Bitfinex, analysts warned that a US rate cut could present a “challenging time” for Bitcoin traders.
A 50 basis point rate cut could potentially trigger a correction, pushing Bitcoin deeper into its recent slump as “recession concerns escalate.” The analysts added:
If we were to speculate, we would caution to expect a 15-20 percent decline when rates are cut this month, with a bottom of $40-50k for BTC
This view is consistent with past analysis from 10x Research, which identified the low 40,000s zone as an optimal entry point for the next bull market.
Although Bitcoin price action may appear bleak in the near term, Based on historical and technical patterns, a six-figure bitcoin Bitcoin is “still in play.”
Popular trader Titan of Crypto pointed to the final quarter of this year as a potential breakout point, describing it as having “epic” potential for price action—a sentiment echoed by other analysts.
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