Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: 0xjs@Golden Finance
Markets hate uncertainty.
This is my answer to those who ask me why Bitcoin has been trading sideways since March.
After all, the long-term outlook for Bitcoin is extremely bullish in the long run. We have record ETF inflows, rapid institutional adoption, the Bitcoin halving post-effects, a heating up political and regulatory environment, and a runaway federal deficit. It’s hard to imagine a better scenario.
Yet, the price of Bitcoin is not moving. It has been like this for months. I think the reason is that all you see in the short term is uncertainty.
What exactly is uncertain?
1. US election: Who will win? More immediately, what position will the Harris campaign take on cryptocurrencies?
2. Mt. Gox and the U.S. government selling coins: After years of bankruptcy proceedings, bankrupt exchange Mt. Gox recently distributed billions of dollars in Bitcoin to its creditors. When will some of the largest holders cash out?
3. SEC Enforcement Actions: As the SEC fiscal year draws to a close in September, what enforcement actions will be forthcoming?
4. Fed rate cuts: When will the Fed start cutting rates? How much will the rate cuts be?
Faced with these major near-term issues, it's not hard to imagine investors thinking: I'll wait until the dust settles before jumping in.
Powell Speech
That’s why I reacted so strongly to Fed Chairman Jerome Powell’s press conference last week in Jackson Hole, Wyoming. One thing I like about Jerome Powell is that he speaks clearly—by far the best Fed communicator I’ve encountered in my career—and he did not disappoint.
As he said: "Now is the time to adjust policy. The way forward is clear, and the timing and pace of rate cuts will depend on incoming data, the changing outlook, and the balance of risks." (See Golden Finance's previous report on the full text of Powell's speech "It's time to adjust policy")
With this, the era of “higher rates for longer” ends, and we enter a rate-cutting cycle in 2024-2025. CME futures currently price in a 100% chance of a rate cut at the September meeting, with rates falling by 200 basis points (2%) over the next year.
Cutting interest rates and not fighting the Fed
Historically, rate cuts are good for risk assets like Bitcoin for a variety of reasons. From an academic perspective, rate cuts can "lower the discount factor used to calculate the long-term value of an asset," thereby pushing up prices. But more importantly, rate cuts inject some life into the market.
One of the oldest maxims in the investment world is “Don’t fight the Fed.” This phrase is often used to warn investors not to buy stocks and other risky assets when the Fed is raising interest rates. But the phrase also works in reverse. When interest rates are falling, “Don’t fight the Fed” means “Don’t sit on the sidelines while risky assets are rising.”
My guess — and this is just a hunch I’ve developed over many years of playing the market — is that the Powell statement fired the starting gun for a new bull run in Bitcoin. I don’t think it will go straight up; there’s still too much uncertainty. But I do think a new era has begun, and it will take shape over time as we move toward an end to the election and other clouds of uncertainty that have hung over the market.
Powell’s statement gave people their first taste of what it might feel like to have the veil of uncertainty lifted on Bitcoin.
All in all, it feels good.
