Bitcoin is surging on hopes rate cuts will drive a speculative rush

• Bitcoin peaked at $61,337 on Tuesday, the largest intraday gain since early August.
• The rise comes amid anticipation that the Fed will deliver a half-point rate cut.
• A lower-rate, soft-landing environment could help risk-on assets come back.

The end-of-summer doldrums may be over for bitcoin.

The token's price climbed as much as 6.4% to $61,337 on Tuesday, its biggest intraday jump since August 8.

Investors are anticipating the Federal Reserve's long-awaited rate cut tomorrow, which will be announced at the end of the central bank's two-day policy meeting. Markets are still unsure how deep the cut will be, pricing in a 63% probability of a 50-basis-point move.

Regardless of the size of the cut, investors buying up bitcoin are anticipating the looser lending conditions will lead to more speculative behavior.

One specific outcome Morgan Stanley recently identified as the best-case scenario for equities would be a 50-basis-point cut accompanied by Fed messaging that the economy is on sure footing. The downside risk there is that investors will be spooked by a deep cut, because of what they think it signals about the economy.

To that end, Tuesday's surprisingly strong retail data pushed back worries of a downturn, and may have contributed to bitcoin's rise.

"Retail sales beating expectations are being received well by the market, alleviating recession fears for now. We could be seeing a recovery of investors' appetite for risk-on assets like crypto, instigating more flows into Bitcoin spot ETFs," said Leena ElDeeb, a research analyst at 21Shares.

Since bitcoin peaked at nearly $74,000 in March, the apex token has been unable to regain its momentum. Seasonal factors weakened the spot bitcoin ETF inflows this summer while deteriorating macro conditions drove investors toward safe, risk-off assets.

This may be changing. Crypto fund investments have risen by $436 million last week after two weeks of outflows, FxPro senior market analyst Alex Kuptsikevich wrote on Monday, citing CoinShares data.

"The surge in inflows at the end of the week was driven by a significant shift in market expectations for a potential 50bps Fed rate cut following comments from former New York Fed President Bill Dudley," he said.