The benchmark interest rate determines the cost of financial borrowing. The higher the rate, the more difficult it is for an investor to obtain capital, and the more expensive this opportunity will be.

Taking this into account, the forthcoming rate cuts by the US Fed representatives are perceived positively. However, they should lead to the activation of economic agents.

US Fed Chairman Jerome Powell

US base lending rate

Since Powell’s speech, the value of Bitcoin briefly rose up to $64 thousand, but then the main cryptocurrency moved to continue the collapse. As a result, BTC fell to a local low of around $57,128 on 2 September.

15-minute chart of the Bitcoin BTC rate on the Binance exchange

Accordingly, the apparent positivity in the market of digital assets did not last long. And this is quite strange, because the current cycle of raising the base interest rate has been going on since March 2022. Since then, the rate has either been raised or left at the same level, putting pressure on the economy.

The upcoming rate cuts will ease it and make digital assets a more attractive investment category. However, for now, investors are still very cautious and are afraid to get involved with crypto.

In explaining what happened, Hayes mentioned reverse repurchase agreements (RRPs), which are agreements to sell securities with an agreement to repurchase them at a higher price at a certain future date. RRPs have a yield of around 5.3 per cent per annum.

This is higher than the indicator of popular treasury bills or so-called T-bills, the yield of which is lower and makes 4.38 percent.

The divergence in Treasury bill yields and RPP after Powell’s speech

With this in mind, large funds are taking their money out of T-bills and investing it in RRPs, which leads to a decrease in the money supply in the market for high-risk assets. It is to this category that cryptocurrencies belong.

In comments on Hayes’ post, a trader under the pseudonym ELI5 of TLDR explained that the RRP programme can act as a “car park” for big banks and money managers where they store their funds. It has a higher rate of return than other safe investments, so the capital stays in one place rather than flowing into the economy.

After the Fed announced a likely rate cut in September, another $120 billion flowed into reverse repurchase agreements, Hayes noted. He also stressed that the event contradicts the narrative that a rate cut is unambiguously favourable for Bitcoin.

According to the Fed Watch platform, the probability of a 25 basis point rate cut in September is 65 per cent, while the probability of a 50 basis point rate cut is 35 per cent. Accordingly, most of the market is betting that the US Fed leadership will do away with a minimal rate cut.


Note that the market sentiment in early August was quite different. At that time, the coin industry and other markets experienced a significant decline, during which Bitcoin fell to $49,000. One of the reasons for the weakness of the sphere were fears of recession by the American economy amid problems with the labour market. And just then, many experts called on the US Federal Reserve to hold an extraordinary urgent reduction in the base interest rate - including by 50 basis points.

Although as the following weeks showed, the situation turned out to be quite controllable.


Probabilities of projected levels of rate cuts at the next FOMC meeting on 18 September

A larger rate cut would mean a more aggressive stance by the Fed, potentially leading to a sharp market reaction and a greater increase in economic activity.

Bitfinex analysts also shared their thoughts on the rate in an interview with The Block. Here’s their commentary.

A 25 basis point rate cut would likely signal the start of a typical easing cycle, while a more aggressive 50 basis point cut could cause Bitcoin’s price to jump immediately. However, it could be followed by a correction amid heightened recession fears.

That is, while a 50 basis point decline would have a greater impact on the economy, it would also create panic over a possible recession in the U.S. economy. Although as Goldman Sachs analysts said the day before, they estimate the prospect of serious problems in the U.S. next year in 20 per cent, although before the corresponding chance was 25 per cent.

Economists are now concerned about several recession indicators – including the Sahm rule, which links rising unemployment to increased recession risk. Job cuts typically lead to lower spending and slower growth.

Changes in the US benchmark interest rate

In addition, the inverted US Treasury yield curve indicates a 50 per cent probability of a recession in the next 12 months. If a recession affects high-risk assets, analysts allow for the prospect of Bitcoin falling 20 per cent from its current value in the weeks following the US Federal Reserve’s interest rate verdict on 18 September.

However, this position does not guarantee a certain outcome, well, even experienced analysts can be wrong. Therefore, investors and traders should traditionally rely solely on their own analyses rather than trusting all the experts.

Former head of crypto exchange BitMEX Arthur Hayes

In addition, the former head of the crypto exchange BitMEX Arthur Hayes has already been wrong with forecasts, and in a big way. For example, in 2022 he allowed the growth of Etherium ETH rate up to 10 thousand dollars in case of successful transition to the Proof-of-Stake consensus algorithm. However, the maximum value of ETH is still the mark of 4878 dollars from 10 November 2021.


In general, the situation in the global economy is far from the best right now. And although the U.S. Federal Reserve will definitely move to lower the base interest rate after two weeks, experts are not sure about the near future. Therefore, such different forecasts on it are a normal phenomenon.