Cryptocurrency Markets Might Rally with Expected 50 Basis Point Fed Rate Cut

Cryptonews John Brightwater September 18, 2024

Cryptocurrency Markets Might Rally with Expected 50 Basis Point Fed Rate Cut

Summary
The chief of a cryptocurrency hedge fund asserts that a 50 basis point cut by the Federal Reserve would likely boost risk assets, including cryptocurrencies. Predictions indicate a 65% chance of a larger cut, which contrasts with the potential negative impact of a smaller 25 basis point cut. Market analysts, including Saad Ahmed from Gemini, agree that such a rate cut could serve as a positive catalyst for price movements.

A significant reduction of 50 basis points (bps) in interest rates by the United States Federal Reserve is anticipated to yield positive outcomes for risk assets and the cryptocurrency market, contrary to prevailing bearish sentiments, as expressed by Joe McCann, founder and CEO of Asymmetric, a cryptocurrency hedge fund. Mr. McCann articulated that the likelihood of a 25 or 50 basis point reduction is nearly equal, with current indicators suggesting a potential transition from the present 24-year high of 5.5% on Wednesday, September 18, marking the first adjustment since March 2020. According to Mr. McCann, historical data indicates that situations where a 70% probability is reflected in Fed futures markets have achieved a 100% success rate concerning anticipated outcomes. As per the CME Fed Watch tool, there is currently a 65% likelihood of a more substantial 50 basis point decrease, contrasted with a 35% probability for a smaller reduction of 25 basis points. He further elaborated that recent media commentary and statements from former Federal Reserve governors have shaped market expectations around a 50 basis point cut. However, Mr. McCann cautioned that a 25 basis point reduction could adversely impact the cryptocurrency market and equities, indicating that should the Fed opt for a 25 basis point cut, it would precipitate a significant downturn in the stock markets, which are currently at peak levels based on expectations of a 50 basis point cut. In contrast, a larger cut of 50 basis points is likely to be regarded as favorable for risk assets, including cryptocurrencies. Saad Ahmed, head of the Asia Pacific region at the cryptocurrency exchange Gemini, concurred, indicating that the markets may have already incorporated the anticipated rate cut into their pricing but suggested that such a change might serve as a catalyst for price movements. He remarked, “Ultimately, you know, risk-on is back on the table” if a larger cut is enacted. Mr. McCann refuted the commonly held assumption that a 50 basis point cut would be detrimental, pointing out that previous cuts were made during economic emergencies, such as the 2008 financial crisis, the dot-com bubble in the mid-1990s, and the 1987 stock market crash. He noted that the present economy is more stable, exhibiting a healthy GDP growth rate of 3%. Moreover, the rationale for considering a 50 basis point cut involves fostering economic growth into 2025 and diminishing net interest payments for the U.S. Treasury. This would facilitate home sales, mortgage refinancing, and provide protection against potential adverse economic data leading into the presidential election. In a related note, a macroeconomics publication, The Kobeissi Letter, indicated on September 17 that uncertainties surrounding Federal Reserve interest rate decisions have not been as pronounced in over 15 years.

The article discusses the potential implications of an expected interest rate cut by the United States Federal Reserve for risk assets, notably cryptocurrencies. With speculations surrounding up to a 50 basis point cut, experts like Joe McCann argue that this may restore market confidence and promote investment in cryptocurrency markets. The background of this discussion lies in the Fed’s historical responses to financial crises, and the current impression is that a reduction in rates could bolster economic stability rather than harm it, especially amidst an overall promising economic landscape.

In summary, the anticipation of a Federal Reserve interest rate cut, particularly one as substantial as 50 basis points, is viewed favorably by market analysts concerning its effects on cryptocurrency and risk assets. By contrasting potential outcomes of different rate cut scenarios, experts suggest that a more considerable decrease may provide the catalyst required for market recovery and invigorate risk-on sentiments among investors. As such, this development warrants keen attention from market participants and analysts alike.

Original Source: cointelegraph.com