Cryptocurrency and tradfi investors are on tenterhooks ahead of this week’s rate cut decision from the U.S. Federal Reserve, which experts say could make or break the long-term bullish trend for risk-on assets such as Bitcoin.

The September 17 interest rate decision is key since it comes at a time when the S&P 500 index, Bitcoin, and gold are at or near all-time highs. The central banks' dual mandate of price stability and maximum employment is conflicting with core inflation above 3.10% and a weakening labor market, with annual revisions revealing a drop of 911,000 from the initial estimate.

The odds of a 25 basis point rate cut currently hover around 94% per CME’s FedWatch tool. Users of prediction market Myriad, launched by Decrypt’s parent company DASTAN, place an 88% chance on a 25bps rate cut, at time of publication.

Short-term vs long-term impacts

Experts who spoke to Decrypt agreed that a quarter-point rate cut would likely have a long-term bullish impact on risk-on assets, including Bitcoin, but remained indecisive on the event’s imminent impact.

In the short-term, “What Powell says at the briefing will matter more for how the market reacts,” Peter Chung, head of research at Presto Research, told Decrypt.

Other analysts drew attention to the dot plot, a quarterly chart indicating Fed policymakers’ projections for the short-term interest rate. A rate cut without a meaningful downward revision of the median dot plot could trigger an altcoin pullback due to elevated open interest, Xu Han, director of Liquid Fund at HashKey Capital, told Decrypt. If the dot plot faces an aggressive downward revision, he expects a rally in large and mid-cap altcoins.

The markets anticipating a quarter-point rate cut have led to a resurgence in speculative activity, leading to “stretched valuations across multiple asset classes,” Derek Lim, head of research at crypto market-making and trading firm Caladan, cautioned Decrypt.

From a short-term perspective, a hawkish surprise from Powell could complicate the Fed's price stability mandate, Lim added.

Bitcoin’s long-term valuation

While Bitcoin’s one-month returns post rate cut highlight the crypto’s unpredictable nature, Caladan’s three-month estimates reveal a bullish outcome 62% of the time with an average gain of 16.50%.

HashKey Capital estimates Bitcoin will hit $700,000 by the end of 2035, assuming a 10% CAGR in the gold price, pointing to a macro narrative that sees the top crypto playing catch-up with gold in the coming decade.

Capital markets commentary The Kobeissi Letter highlighted risk-on assets’ bullish outlook in the long term, stating that the S&P 500 index has ended up higher a year later when the Fed cuts rates within 2% of the index’s all-time highs, in a Saturday tweet.

“This time around, we expect a similar outcome,” the tweet thread noted, indicating a potential for “immediate-term volatility, but long-term asset owners will party,” supported by interest rate cuts amid rising inflation and the AI Revolution.

The straight-line higher price action seen in gold and Bitcoin reflects the markets pricing in what's coming, The Kobeissi Letter argued.

While Chung and Han expect at least three quarter-point rate cuts before the end of the year, Lim said a “second 25 basis point cut remains possible, but would require either a material deterioration in labor markets or convincing evidence that inflation is sustainably converging to 2%.”

Bitcoin is down 0.8% over the past 24 hours and is currently trading at just under $115,000, per CoinGecko data.

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