The Fed’s interest rate cut cycle begins
With the Federal Reserve officially cutting interest rates by 50 basis points, the last shoe on the macro level of the crypto market this year has finally landed.
Looking back now, among the three clear positive things that the market is most looking forward to in 2024 - spot Bitcoin ETF, Bitcoin halving, and the Federal Reserve interest rate cut, ETF pushed Bitcoin to break through 70,000 US dollars and hit a record high; the halving did not. Expectations generally bring significant market volatility.
While the relevance of macro conditions to Bitcoin is often debated, macro cycles, especially USD liquidity (as a function of monetary policy/interest rates, risk appetite, etc.) remain the primary driver of medium- to long-term asset prices. Today, market consensus seems to be mostly bullish on the start of the Fed’s rate cut cycle, and it is generally believed that this is a tradable event, but is this really the case?
If history repeats itself after the Fed’s aggressive rate cuts, Bitcoin price action may diverge from that of stocks
Can the crypto market ride the wave?
Bitcoin attempted to break through the $62,000 support level on September 19 as the market digested the Federal Reserve’s rare 0.5% interest rate cut.
Bitcoin hits three-week high as Fed cuts rates
Data from Cointelegraph Markets Pro and TradingView show that Bitcoin (BTC) prices continued to strengthen during the Asian trading session.
Gold hit a local high of $62,600 following the Fed’s move, which was only the third time in history that a rate-cutting cycle began with a 0.5% cut.
These, in turn, liquidated short BTC positions on the exchange’s order books. Data from monitoring resource CoinGlass shows a total of $128 million in the 24 hours to the time of writing.
“Now we need to reduce leverage or take profits,” it told followers on X in a subsequent analysis, warning them not to “get carried away.”
Previously, Cointelegraph reported that a 0.5% rate cut would have seen BTC price reach $64,000, but this ultimately proved too much for bulls to bear as there was still significant resistance above.
“Bitcoin is slowly breaking through resistance,” noted trader Jelle reported on X.
Meanwhile, the U.S. dollar was volatile, with the U.S. dollar index (DXY) also rising initially before giving up gains and returning to previous support levels.
“On the edge of support. A break below this level could lead to a sharp drop towards 96,” responded prominent trader Aksel Kibar in his latest X DXY analysis.
For Arthur Hayes, former CEO of cryptocurrency exchange BitMEX, attention is now focused on the Bank of Japan’s interest rate decision, which is due on Sept. 20.
He said the strength of the yen would in turn affect Bitcoin's price performance.
Although it appeared to increase liquidity, the rate cut cycle that began with a 0.5% rate cut ultimately led to a decline in the US stock market.
"In 2001, the market fell 31% after two years, and in 2007, the market fell 26% after two years. These were major crises," recalled part of X's post.
Kobeissi contrasted the Fed’s upbeat message with the scale of its policy reductions, suggesting there was a contradiction.
The article asks: “If the Fed only cut rates by 50 basis points during the crisis, why did it cut rates by 50 basis points this time?”
The Fed continues to say the economy is strong and calls for a soft landing. But policy decisions make us feel as if we are in a crisis. Something is not making sense.”
Data from CME Group's FedWatch tool show that the probability of the Fed cutting interest rates again by 0.5% at its next meeting on November 7 is less than 0.25%.
For the crypto industry, the 2024 U.S. presidential election has become a political show that is completely different from the 2020 and 2016 elections. Whether it is the agenda setting throughout the election cycle or the public statements of the presidential candidates on both sides, cryptocurrencies have unprecedentedly begun to be involved, and the candidates on both sides are even "comparing" their open attitudes.
The election year is definitely a key factor. For the United States, the group that directly or indirectly holds cryptocurrencies has become a force that cannot be ignored, especially when the poll data is tight. The "critical few" are very popular, as can be seen from the passage of the FIT21 bill at this time point.
History does not simply repeat itself, but it always rhymes.
In this market environment where the market is both cold and warm, there are still quite a lot of positive factors slowly fermenting. As long as you observe carefully, you will still have confidence in the future market. With the start of a new round of interest rate cuts and the dust settling on the 2024 US election, Web3 and the encryption industry may really enter a new cycle.
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