Sell-Off on 0 or 25 bp, Relief Rally on 50 bps

The Federal Reserve’s (Fed) September 17 policy meeting is shaping up to be one of the most consequential for risk assets this year, with crypto traders bracing for volatility.

Markets are overwhelmingly pricing in a rate cut, but the scale of that move, whether 25 basis points, 50 basis points, or the unlikely scenario of no change, could spark very different reactions in Bitcoin and altcoins.

The 25 Basis Point Baseline

Most analysts see a quarter-point cut as the base case. Charlie Bilello noted that the Fed Funds Rate is expected to be cut 25 bps this week.

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Meanwhile, bond market watchers like Shazi argue the decision is already locked in. Yields are also pricing three such cuts by year-end.

“The 10-Year Note Yield officially drops below 4.00% for the first time since April 4. Markets are now fully pricing in three 25 bps interest rate cuts by year-end,” The Kobeissi Letter added.

Notwithstanding, that certainty may be a double-edged sword, with analysts already forecasting a sell-the-news event.

“There’s probably a 99% chance a rate cut is announced on Wednesday. No one will be surprised by that. This is why it’s often a sell-the-news event. Once we get past that news, Thursday will probably be green, and Friday will probably be some chaos that finishes green,” analysts at IncomeSharks noted.

Meanwhile, Bitcoin’s history with rate cuts shows that excitement often gives way to steep sell-offs.

Accordingly, traders should be cautious about assuming a cut automatically means a rally.

“The last time the Fed cut rates was December 18, 2024. Bitcoin was at $106,000 and dumped 30% within weeks,” analyst Quinten observed.

With Bitcoin reclaiming above the $115,000 threshold, traders are wary that a similar dynamic could play out.

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Analyst Ted Pillows mapped two bearish near-term scenarios. The first entails a drop toward $104,000 before a reversal, while the second highlights a deeper slide toward $92,000 to fill a CME gap before rallying to fresh highs.

The 50 Basis Point Surprise

Still, a larger cut remains possible, if unlikely. According to Gurgavin, Standard Chartered expects a 50-bps move, though Kalshi odds suggest only a 9% chance.

Analysts see such a decision as bullish, forecasting + $2.5 trillion in market liquidity that could send altcoins soaring.

Zero Hedge, a popular user on X, noted JPMorgan’s assessment that a 50-bps cut has just a 7.5% probability but could move equities by 1.5% either way.

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If realized, this more aggressive easing would likely fuel a short-term rally in crypto, breaking the “sell-the-news” cycle by signaling the Fed is willing to provide deeper liquidity.

The Zero-Cut Shock

While no analysts actively call for a hold, the possibility cannot be dismissed. Zero Hedge pointed out that even a hike still carries a nominal probability in market models, highlighting lingering uncertainty.

Should Powell refuse to cut, sentiment could unravel quickly. As traders like Hunts observed, the market is already “on shaky ground,” with politics and tariffs complicating the picture.

“The Crypto markets are back on shaky ground. Bitcoin has pulled back from recent highs as traders weigh what the Fed will do next. A 25-bps rate cut at this week’s FOMC meeting looks likely, but President Trump is demanding even deeper cuts to soften the blow from tariffs and a cooling job market,” Hunt explained.

This tug-of-war between politics and policy is adding fresh volatility to Bitcoin and altcoins, with sentiment hanging in the balance.

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“…The question now: Will the Fed play it safe, or swing harder?” Hunts posed.

A no-cut outcome would likely trigger a sharp sell-off across risk assets, with Bitcoin particularly exposed.

Beyond the Decision, Tone Matters

Ultimately, much will depend not just on the size of the cut but also on Powell’s guidance. Crypto market participants will monitor the Fed chair’s speech for possible clues.  

“It won’t be sell the news if Powell speaks in a dovish manner, which he is extremely likely to do,” Kale Abe argued.

Traders will parse every word for clues on future easing, with September’s seasonal equity selling adding another layer of risk, as YAARRR highlighted.

Crypto markets have rallied for months on expectations of easier money.

However, whether September 17 marks the start of a new leg higher or a painful reset hinges on which scenario pans out tomorrow.