Economists expect the US Dollar to continue to weaken, potentially dragging Bitcoin down with it, and have warned investors to “prepare for troubled times.”
Bitcoin has surged this year, starting the year at $44,187.14 and trading at $59,130.31 on Tuesday, but the cryptocurrency's price began to fall in late August and has continued to fall into early September.
“September has traditionally been a volatile month for Bitcoin, with an average return of 4.78% and a typical peak-to-trough decline of 24.6%,” analysts at crypto exchange Bitfinex told Forbes in an email.
Investors are hoping the Federal Reserve will cut interest rates at its two-day meeting in September to help guide the economy towards a soft landing.
Bitfinex analysts have warned that Bitcoin could fall below $40,000 again if the Federal Reserve delivers a long-awaited interest rate cut.
Analysts noted that Bitcoin is a typically volatile stock in September as trading calms down after the end of summer, and the rate cuts would only exacerbate that volatility.
A September rate cut looks more likely than ever after Federal Reserve Chairman Jerome Powell delivered a more dovish tone than expected in his Jackson Hole speech, sending the US dollar further lower.
“It's been a tough summer for the dollar,” Neil Loherty, an analyst at investment platform Stocklytics, told Forbes in an email. “As recently as April, the dollar was soaring against almost every global currency and its dominance seemed unstoppable, but now it is at its lowest since 2024 against the euro, pound and yen.”
Minutes from the Federal Reserve's July meeting revealed that the central bank may cut interest rates more than initially expected after a series of pandemic-induced hikes pushed them to their highest levels in 23 years.
Roati reaffirmed that interest rates could fall faster than expected, by as much as 100 basis points by the end of the year.
He said investors should pay attention to how other central banks such as the European Central Bank, the Bank of England and the Bank of Japan react, particularly the differential between their interest rates and those of the United States.
“This all-important interest rate differential could be a catalyst for significant currency volatility over the coming months,” Loati said. “Be prepared for some potential volatility.”
Both the European Central Bank and the Bank of England are expected to continue cutting interest rates.
Investors remain uncertain about the next move from the Bank of Japan, which announced a surprise interest rate hike in July, triggering a sharp market sell-off.
Meanwhile, the price of Bitcoin has fallen from its strong gains in the first half of the year.
“We remain optimistic about the medium to long-term outlook for digital assets, but current evidence urges caution,” Markus Thielen, CEO of 10x Research, wrote in a note.
Seelen said the market has made a V-shaped recovery after the declines in May, July and August, but each decline has been larger and the recovery slower.
“The latest month-end data suggests we may be approaching a critical turning point in September, when a decline in demand will become more noticeable,” he said.
However, other analysts have noted Bitcoin’s historic low in September and argued that the interest rate cut could actually improve the cryptocurrency’s performance.
The data shows that Bitcoin’s average value decline in September was 6.56%, Innokenty Izzaz, founder of UK-based cryptocurrency exchange Paybis, told Forbes in an email.
Izard argued that interest rate cuts would typically lead to increased inflows of US dollars, lowering the value of the greenback, which could make Bitcoin seem like a healthy alternative.
“If Fed policy weakens the dollar, a switch to riskier assets with higher growth potential may be inevitable,” he said.
He said the popularity of spot bitcoin exchange-traded funds (ETFs) could also boost bitcoin's performance in September.
After a decade-long battle with the cryptocurrency industry, the U.S. Securities and Exchange Commission earlier this year approved ETFs that allow investors to acquire shares in funds that hold bitcoin offered by firms such as BlackRock and Fidelity.
The ETF was a huge hit, ushering in a trading frenzy that saw the price of Bitcoin surpass $60,000 in February for the first time in two years.
The BlackRock and Fidelity Bitcoin ETF is one of the fastest growing ETFs in history.
