Bitcoin Extends Gains After Fed Cuts Interest Rate

• Bitcoin recovers above $62,000 following Federal Reserve’s dovish interest rate decision.
• Lookonchain’s chart shows how the Federal Reserve Rate has affected the price of Bitcoin.
• CryptoQuant founder Ki Young Ju tweeted that institutions are no longer aggressively shorting Bitcoin.

Bitcoin (BTC) extends recent gains and trades above $62,000 at the time of writing on Thursday after a 2.4% gain the previous day following the Federal Reserve’s (Fed) dovish decision to cut interest rates by 50 basis points basis. On-chain metrics shared by Ki Young Ju, founder of CryptoQuant, further indicate signs of BTC strength.

Bitcoin Reaction to Fed Rate Cut

Bitcoin rose 2.4% to close above $61,700 on Wednesday after members of the US Federal Reserve decided on a 50 basis point (bps) cut in interest rates.

The Lookonchain chart below shows how the Federal Reserve Rate has affected the price of Bitcoin.

At the start of the COVID crisis in 2020, the Federal Reserve aggressively cut interest rates, bringing them to the 0%-0.25% range. The low interest environment triggered a surge in the price of Bitcoin, which rose from around $5,000 to $60,000.

Conversely, rate hikes between March 2022 and December 2022, raising rates to a range of 4.25%-4.50%, negatively impacted Bitcoin, causing its price to fall from around $46,000 to $16,000.

Similarly, the current 50 basis point interest rate cut to a range of 4.75%-5.00% could produce similar effects to those seen during the COVID crisis. However, while the rate cut in 2020 significantly influenced the price of Bitcoin due to the global nature of the crisis, the anticipated cut in 2024 may have a positive but less pronounced impact.

Federal Reserve Rate VS Bitcoin Price Chart

However, economist and gold advocate Peter Schiff warned of a Fed rate cut in a tweet on Wednesday after the Federal Reserve cut interest rates by 50 basis points. “As expected, the Fed caved to the markets and cut interest rates by 50 basis points,” he wrote, adding: “Not only will this round of rate cuts not prevent a cooling economy from entering into a recession, but there will also be heat on inflation, which makes the recession worse.”

Schiff also commented: “Not only did the Fed’s 50 basis point rate cut send gold to a record high above $2,595, it also sent the US dollar below 0.84 Swiss francs, a new low in the last 13 years”. This indicates that the rate cut could move investors away from risky assets like Bitcoin to safer assets like gold.

Ki Young Ju, founder and CEO of CryptoQuant, an on-chain data and analytics company, POSTED on Twitter, “Institutions are no longer aggressively shorting Bitcoin. CME futures net positions are down 75% over the past five months,” suggesting a positive move for Bitcoin.

Bitcoin CME Futures Net Position chart

Louisiana State Treasurer Dr. John Fleming announced on Twitter that the state government will now accept Bitcoin, Bitcoin Lightning and USD Coin as valid forms of payment.

“In today’s digital age, government systems must evolve and embrace new technologies. By introducing cryptocurrency as a payment option, we are not just innovating; we offer our citizens flexibility and freedom in interacting with state services. Additionally, this unique innovation protects our state from any volatility associated with cryptocurrency,” said Dr. Fleming.

The Louisiana Department of Wildlife and Fisheries was the first state agency to implement the new payment system, paving the way for other departments. This could have a positive impact on Bitcoin and the broader crypto markets by promoting greater acceptance of cryptocurrencies.

Technical analysis: Bitcoin above the $62,000 barrier

Bitcoin price broke above the downtrend line (drawn from multiple highs since late July) earlier in the week and closed above the 100-day exponential moving average (EMA) at $60,781 on Wednesday. At the time of writing, BTC is extending gains near its 61.8% Fibonacci retracement level of around $62,000.

If BTC closes above the 61.8% Fibonacci retracement level, it could rise 5.6% to retest its daily resistance at $65,379.

The MACD (Moving Average Convergence Divergence) indicator further supports Bitcoin’s rise, signaling a bullish crossover on the daily chart. The MACD line (blue line) has moved above the signal line (yellow line), giving a buy signal. It shows rising green histogram bars above the neutral zero line, also suggesting that Bitcoin price may experience an upward push.

Additionally, the Relative Strength Index (RSI) is trading above its neutral level of 50, indicating bullish momentum.

BTC/USDT Daily Chart

However, the bullish thesis will be invalidated if BTC breaks below the downtrend line and closes below the daily support level of $56,022. In this case, Bitcoin price could extend the decline by 3.6% to retest the psychologically important level at $54,000.