Benjamin Cowen Bearish on Fed Rate Cuts - How Will Bitcoin Price React to the Fed’s Policy Shift?

Trent Alan

Last updated:

January 15, 2024 23:50 EST | 2 min read

Bitcoin’s price may face pressure as analysts predict declines if the Fed begins cutting rates. *Image by sasirin pamai, Vecteezy.*The possibility of Federal Reserve rate cuts in the coming months has the crypto community divided on the potential impact on the Bitcoin price. While rate cuts would typically be viewed as bullish, some analysts warn the policy shift may pressure Bitcoin in the short term.

According to well-known crypto analyst Benjamin Cowen, rate cuts from the Fed often coincide with risk asset pullbacks, at least initially. Cowen cautioned that when the Fed starts slashing rates again, which CME’s FedWatch Tool indicates is likely to happen as early as March, risk assets like Bitcoin may actually decline in price, testing lower support levels around $36,000.

“As rate cuts arrive it’s typically not the most bullish thing for risk assets, not because rate cuts in and of themselves are not bullish, but because a rate cut in and of itself is theoretically bullish,” Cowen explained in a recent YouTube strategy session. “But the problem is not the rate cut itself. It’s why the rate cut is happening.”

Impact of Fed Rate Cuts on Bitcoin’s Price

Cowen believes rate cuts at this stage would imply the economy is faltering.

“If a rate cut were to arrive with inflation as high as it is, there’s probably a reason that that’s happening,” he said. This could spark a risk-off environment and weigh on Bitcoin’s price.

Historical precedents also have Cowen concerned about how Bitcoin will react to imminent Fed easing.

“Last cycle, we did get sort of a [Bitcoin] mid-cycle top [in September 2019] right around the time that rate cuts arrived…,” he noted. The top crypto then plunged 30% over the next two months.

Potential Bitcoin Support Levels on Policy Change

Cowen warned that Bitcoin may dip to test levels within the bull market support band, which is formed by the 20-week simple moving average and the 21-week exponential moving average.

“I think it’s worthwhile to keep an eye on the eight-week moving average this week.,” he said. “If we get below it, there’s a good chance we’re going to test the bull market support band, which is all the way down at $35,000 to $37,000.”

For now, Bitcoin continues hovering around $43,000 as anticipation builds for a Fed pivot. Analysts like Cowen stress investors should prepare for increased volatility and potential downside as central bank policy shifts back to easing, however. With the Fed’s March meeting now in sight, the crypto community is on high for any changes that could impact the Bitcoin price trend.