Bitcoin surges past $62K after Fed rate cuts drive market rally, but traders urge caution

Bitcoin (BTC) has surged past $62,000 following the US Federal Reserve's decision to cut interest rates by 50 basis points. This widely expected move has ignited optimism across both cryptocurrency and traditional markets, with traders hoping the rate cut will lead to a "soft landing" for the US economy. However, despite the initial rally, many experts are urging caution due to lingering economic uncertainty.

Fed rate cuts spark crypto and stock market rally

The Federal Reserve's rate cut has sent shockwaves through financial markets. On 19 September, Bitcoin rose 2.8% to trade near $61,871 after the Fed reduced its interest rate to a target range of 4.75% to 5.00%. This marks the first rate cut since 2020 and signals the start of the Fed's easing cycle. While Bitcoin initially dropped to $60,000 after the announcement, it quickly rebounded, surging past $62,000 in the hours that followed.

The rate cut has also driven gains across US stock futures. S&P 500 futures climbed 1.6%, Dow Jones Industrial Average futures rose 1.2%, and Nasdaq 100 futures led the charge with a 2.1% increase. Investors appear to be rallying around the belief that the Fed's decision could prevent a recession despite the rate cut taking place in a relatively strong economy.

Bank of America has revised its forecasts, now predicting that the Fed will cut rates by 0.75% by the end of the year, up from its previous estimate of 0.50%. The central bank's own "dot plot" indicates that policymakers expect a half-percentage-point reduction, suggesting there may be more rate cuts on the horizon.

Bitcoin and major altcoins benefit

Bitcoin wasn't the only asset that experienced gains following the Fed's decision. The broader crypto market saw a wave of positivity, with Solana (SOL) leading the way, rising 6%. Other major cryptocurrencies like Ripple (XRP) and Cardano (ADA) also posted solid gains of up to 4.5%. Even memecoins like Dogecoin (DOGE) and Shiba Inu (SHIB) rose 4%, reflecting the optimism sweeping through the market.

At the same time, major tech stocks in traditional markets saw similar gains. Alphabet, Microsoft, Meta, and Apple all saw premarket increases of around 2%, while Tesla and Nvidia climbed 3%.

However, some market analysts are warning that the rally may not last, with concerns about potential volatility as more economic data comes in. Traders are closely watching for the latest readings on weekly jobless claims, which could provide further insight into the health of the US labour market, a key factor for future rate decisions.

Caution amid economic uncertainty

Despite the renewed positive sentiment across both crypto and traditional markets, traders remain cautious amid the potential challenges posed by economic uncertainty and market volatility. 

In a post-meeting press conference, Fed Chair Jerome Powell referred to the 50 basis point rate cut as a "recalibration". He acknowledged that inflationary risks have eased while the economy remains strong and employment concerns are rising. Powell emphasised that the Fed's work is far from over: "We're not saying 'mission accomplished' or anything like that," he said, indicating that more adjustments may be needed to ensure long-term price stability.

Divided market reactions

While the latest move from the Fed may provide temporary relief to markets, concerns about future growth and a potential recession still loom large.

Traders on Polymarket, a decentralised market prediction platform where individuals can bet on world events, are already betting on additional rate cuts, showing a 41% chance of another 100 basis point reduction by the end of 2024. The current outlook suggests a 65% probability of a 25 basis-point cut in November, and December may bring even further reductions, with a 50% chance of a 25 basis-point cut and a 33% chance of another 50 basis-point cut.

Altcoins and AI tokens on the rise

The cryptocurrency market continues to express a relationship with emerging tech stocks and trends, especially artificial intelligence (AI). Alongside Bitcoin's gains, altcoins and AI-related tokens have also seen a surge in value. Sui (SUI) and Fantom (FTM) also posted double-digit gains, while AI tokens are experiencing a recovery. Notably, the correlation between AI tokens and Nvidia's stock appears to be weakening, with Nvidia down 3% over the last five days while AI tokens continue to rise.

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