The Federal Reserve is overwhelmingly expected to announce a quarter-point rate cut this week, with markets pricing in a 94% probability. Bitcoin and other risk-on assets hang in the balance as investors await Chair Jerome Powell’s forward guidance. Experts warn that short-term volatility could mask long-term bullish trends for cryptocurrencies.
Market Expectations and FedWatch Tool Signals
The CME Group’s FedWatch tool indicates a staggering 94.2% probability of a 25 basis point rate cut from the U.S. Federal Reserve, reflecting overwhelming market consensus. This sentiment is further reinforced by prediction market Myriad, launched by Decrypt’s parent company DASTAN, which places an 88% chance on the same outcome. The heightened expectations come at a critical juncture for financial markets, with the S&P 500 index, Bitcoin, and gold trading at or near all-time highs, creating a delicate balance for Fed policymakers.
The Federal Reserve faces a complex challenge in balancing its dual mandate of price stability and maximum employment. Core inflation remains stubbornly above 3.10%, while recent labor market data shows concerning weakness, with annual revisions revealing a drop of 911,000 jobs from initial estimates. This economic backdrop makes the September 17 interest rate decision particularly significant for both traditional finance (tradfi) and cryptocurrency markets, as investors seek clarity on the central bank’s policy trajectory.
Short-Term Volatility vs. Long-Term Bullish Outlook
Experts speaking to Decrypt emphasize that while a rate cut would likely benefit risk-on assets like Bitcoin in the long term, the immediate market reaction hinges critically on Fed Chair Jerome Powell’s commentary and forward guidance. Peter Chung, head of research at Presto Research, notes that “What Powell says at the briefing will matter more for how the market reacts,” highlighting the importance of communication strategy in managing market expectations.
Analysts are particularly focused on the Fed’s dot plot, the quarterly chart showing policymakers’ interest rate projections. Xu Han, director of Liquid Fund at HashKey Capital, warns that a rate cut without meaningful downward revision of the median dot plot could trigger an altcoin pullback due to elevated open interest. Conversely, aggressive downward revisions could spark rallies in large and mid-cap altcoins, creating divergent outcomes within the crypto market.
Derek Lim, head of research at crypto market-making firm Caladan, cautions that markets anticipating the rate cut have already fueled a resurgence in speculative activity, leading to “stretched valuations across multiple asset classes.” From a short-term perspective, a hawkish surprise from Powell could complicate the Fed’s price stability mandate, potentially triggering volatility across risk assets including Bitcoin, which has already declined 0.8% over the past 24 hours to trade just under $115,000.
Bitcoin's Long-Term Valuation and Macro Narrative
Despite potential near-term turbulence, long-term projections for Bitcoin remain exceptionally bullish. Caladan’s research reveals that while one-month returns post-rate cut highlight Bitcoin’s unpredictable nature, three-month estimates show bullish outcomes 62% of the time with average gains of 16.50%. This pattern suggests that temporary volatility often gives way to sustained upward momentum following monetary policy easing.
HashKey Capital presents an even more optimistic long-term forecast, estimating Bitcoin could reach $700,000 by the end of 2035. This projection assumes a 10% compound annual growth rate in gold prices and reflects a macro narrative that sees Bitcoin playing catch-up with gold’s market capitalization over the coming decade. The parallel movement between gold and Bitcoin prices recently indicates markets are already pricing in this convergence story.
The Kobeissi Letter reinforces this bullish outlook, noting historical patterns where the S&P 500 index ended higher a year later when the Fed cut rates within 2% of the index’s all-time highs. Their analysis suggests that while immediate-term volatility is likely, “long-term asset owners will party” as interest rate cuts coincide with rising inflation and the ongoing AI Revolution. This perspective aligns with Chung and Han’s expectation of at least three more quarter-point rate cuts before year-end, though Lim cautions that additional cuts would require either material labor market deterioration or convincing evidence that inflation is sustainably converging to the Fed’s 2% target.
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