Could a 50 Basis Point Rate Cut Signal Trouble for Bitcoin?

Friday’s U.S. jobs report has set the stage for the Federal Reserve (Fed) to begin cutting interest rates, with the first move potentially happening next week. However, while the idea of rate cuts may seem bullish for liquidity and risk assets like cryptocurrencies, a 50 basis point (bps) cut on Sept. 18 could signal deeper concerns for markets, according to 10x Research.

Interest rate changes are typically measured in basis points, where 1 bps equals 1/100 of a percentage point. Central banks, including the Fed, often adjust rates by 25 bps increments. However, larger adjustments—such as 50 or 75 bps moves—can indicate urgency, as seen during the 2022 tightening cycle when the Fed delivered multiple rate hikes to combat soaring inflation. These larger moves often led to risk aversion in financial markets, causing assets like Bitcoin (BTC) to suffer.

A 50 bps rate cut next week could suggest that the Fed is grappling with heightened economic concerns or feels it’s falling behind in addressing an impending slowdown. This could cause investors to reduce their exposure to risk assets, including Bitcoin and stocks.

“While a 50 basis point cut by the Fed might signal deeper concerns, the Fed’s primary goal will be managing economic risks rather than appeasing markets,” said Markus Thielen, founder of 10x Research, in a note to clients. Thielen, who accurately predicted Bitcoin’s first-quarter rally to $70,000, believes a significant cut may raise red flags for investors.

At the time of writing, the Chicago Mercantile Exchange’s (CME) FedWatch tool shows a nearly 30% probability that the Fed will implement a 50 bps cut, lowering the target rate to the 4.75%-5% range.

“The probability of a 50 bps cut is currently at 29%, which differs from our view and the prevailing consensus. Many believe the Fed is behind the curve, having missed signs of labor market weakness after being caught off guard in July,” Thielen added.

His view aligns with traditional market experts, including macro trader Craig Shapiro, who believes the Fed is unlikely to start with a 50 bps cut because the economy does not yet warrant such drastic action.

“The Fed doesn’t need to panic right now. Liquidity-addicted markets may want a 50 bps rate cut, but we’ll likely see a correction in risk assets until the Fed delivers a larger cut,” Shapiro said on X (formerly Twitter). He also warned that while markets may push for aggressive rate cuts, the Fed is unlikely to act unless economic conditions worsen significantly.

Historical data shows that the start of a rate-cutting cycle, regardless of the size of the cut, doesn’t always have an immediate positive impact on asset prices. Bitcoin’s price increase from $20,000 in January 2023 has been largely fueled by expectations of Fed easing. This raises the question: is a potential rate cut already priced into the market?

If the Fed chooses to cut rates by 50 bps, it could signal that economic challenges are more severe than previously anticipated, potentially sparking a downturn in Bitcoin and other risk assets. The market will be watching closely to see if the Fed’s decision reflects deeper concerns, which could impact sentiment around cryptocurrencies in the coming months.