Fed rate cuts are not a sure thing — What does this mean for Bitcoin?

A portfolio manager says market participants are a bit too optimistic about an aggressive Fed interest rate cut, which could pose risks.

The United States Federal Reserve may not be cutting interest rates to the degree that market participants appear to be anticipating, according to a portfolio manager. 

Yet, the broader crypto industry remains hopeful of the looming rate cut in September.

“The market pricing in 100 basis points of cuts by the end of the year is a potential risk, and it is potentially getting ahead of itself, there is nothing to support that thesis,” Caldwell Investment Management portfolio manager Justin Elliot said in an Aug. 14. Bloomberg interview.

Doubt surrounds Fed’s “level of aggression”

Elliot believes that inflation will continue to head in the right direction but warned market participants not to be too confident of the economy continuing to slow down, noting that it is performing “fairly well” and retail sales remain “fairly strong.”

“If you’re of the view that the economy will continue to soften and ease up from here, then we think there is a risk that even the new outlooks might be a little too optimistic and could potentially see some estimate cuts as the year goes on.”

Elliot also opined that there is nothing to support the “level of aggression” expected by the Fed to cut rates, which many Bitcoin (BTC) investors believe the asset needs to surpass its current all-time high of $73,679.

Interest rates are crucial for Bitcoin because high rates make safe investments like bonds and term deposits more attractive to investors, potentially driving investors away from Bitcoin.

However, lower rates often lead investors to seek out riskier assets like Bitcoin.

Elliot’s comments come after the US Bureau of Labor Statistics (BLS) reported July Consumer Price Index (CPI) data on Aug. 14, showing annualized price increases for consumers of 2.9% — the slowest rate increase since 2021.

Following the announcement, Bitcoin fell by approximately 3%, breaking below the crucial $60,000 level to $58,897, according to CoinMarketCap data.

Bitcoin’s decline was likely “due to hopes of a more dovish rate cut,” according to Eliézer Ndinga, head of strategy and business development, digital assets at 21Shares.

Crypto industry remains hopeful

However, the broader crypto industry is still hopeful for a rate cut in September, which has been speculated about for months.

“US inflation will continue to decelerate, further strengthening the case for Fed rate cuts,” ETC Group head of research Andre Dragosch wrote in an X post on Aug. 14.

Related: $35T US national debt could bolster Bitcoin’s adoption as ‘hard money’

“CPI data comes out and is positive, slightly lower than expected. The likelihood of a rate cut is approaching for the FED, through which the likelihood of QE & upward price action for Bitcoin has increased,” MN Trading founder Michael van de Poppe added.

Meanwhile, Zach Pandl, Grayscale’s head of research, recently told Cointelegraph that “rate cuts are likely a necessary condition for sustained weakness in the US dollar and fodder for Bitcoin to retest its all-time highs.”

“Fortunately for crypto investors, the incoming data may be a signal for lowering rates sooner rather than later,” Pandl added.