Will Bitcoin’s Rally Continue? How Will Tomorrow’s Interest Rate Decision Affect BTC?

Bitcoin (BTC) rose 5% to $61,000 in early trading hours in the U.S. on Tuesday, as the overall cryptocurrency market surged ahead of the Federal Reserve’s highly anticipated meeting.

The central bank is expected to announce its first benchmark interest rate cut in four years, fueling optimism in the digital asset space.

Bitcoin climbed to a three-week high of $61,330 before paring some of its gains and was trading just below $61,000 by midday. The asset is up more than 5% in the past 24 hours.

“As we look ahead, a lot of the focus will be around positioning for tomorrow’s highly anticipated Fed event,” Joel Kruger, chief market strategist at LMAX Group, said in a market update. While uncertainty looms over whether the Fed will cut rates by 25 basis points or 50 basis points, the CME FedWatch Tool shows a 63% chance of a more significant 50 basis point cut.

“Investors are welcoming the possibility of a larger, more investor-friendly Fed rate cut, and as a result, yield spreads have shifted in favor of the U.S. dollar,” Kruger added.

But analysts at K33 Research warned that bigger cuts, while tempting, could signal rising recession risks, as seen in past downturns in 2001 and 2007. They said the situation could be different this time because inflation has eased in recent months, giving FEED room to cut risk assets more quickly without causing panic.

Despite the recent volatility, Bitcoin’s rally could be capped by higher resistance in order books, analysts say. Market participants are eyeing a potential 125 basis point cut in the federal funds rate by the end of the year, but any unexpected moves by the Fed could send markets into turmoil.

*This is not investment advice.