US Fed Prepares for Rate Cuts – Crypto Summer Incoming?

• FedWatch says there's a 100% chance of Fed rate cuts in September, with the only question being how much the cuts will be.
• Multiple crypto analysts and industry experts (like Anna Wong) agree that a crypto rally might be coming with the rate cuts, pushing crypto to new all-time highs.
• Lower interest rates typically lead investors to riskier asset classes like crypto, a sentiment Nansen crypto analysts also echo.

With potential Fed rate cuts on the horizon, will the promised crypto summer finally arrive? That seems to be the case, as more liquidity in financial markets typically benefits risk assets like crypto.

Federal Reserve Chair Jerome Powell confirmed the incoming rate cuts in clear terms at the Jackson Hole Economic Symposium.

The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, evolving outlook, and the balance of risks.Jerome Powell, Federal Reserve Chair

FedWatch data shows a 65% chance that the Fed will cut rates by 0.25% next month and a 35% chance of a 0.5% rate cut. In total, a 100% chance of rate cuts in September.

Meanwhile, the global crypto market cap has increased by 1.53% in the last 24 hours, reaching $2.1T. Bitcoin ($BTC) pumped by 1.43%, with Ethereum ($ETH) up by 4.09%.

How will the crypto market react to the Fed rate cuts, and will investors finally get a crypto summer? Let's see.

Fed Rate Cuts Are Coming - No Doubt About It

To clarify, it's not a question of if rate cuts are coming but when they're coming. Jerome Powell made things clear in his speech at the Kansas City economic symposium on August 23.

We will do everything we can to support a strong labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market.Jerome Powell, Federal Reserve Chair

Anna Wong (chief US economist) and Quinn Thompson (founder of crypto hedge fund Lekker Capital) are confident the rate cuts are coming soon.

Thompson underlines the near-certainty of multiple rate cuts soon, which means the crypto industry might be in for a bullish run.

I thought similar. Or at least if not 50 in September, at least 75 by year end. The biggest takeaway for me was that it was certainly not a one and done" type of speech. That was a strong confidence in rate cutS with an S. https://t.co/WVZ3Aj7u4g

- Quinn Thompson (@qthomp) August 23, 2024

After the historical rate hike cycle in 2023that pushed US rates to between 5.25% and 5.50%, the industry isn't surprised in the slightest that the Fed is cutting them back now.

How Will This Impact Cryptocurrencies?Crypto thrives amid low interest rates.

When interest rates are low,investors tend to look toward high-risk asset classes.

And we can all agree that crypto fits the bill.

QCP Capital (digital asset trading firm) emphasized the importance of rate cuts in an investor note, noting that increased liquidity will push crypto higher.

Crypto analysts at Nansen (blockchain analytics firm) agree with this feeling, highlighting a near-certain probability of a crypto bull run caused by the Fed rate cuts.

Meanwhile, the crypto market remains uncertain, with slight positive shifts in the last 24 hours ($BTC +1.43% and $ETH +4.09%). It's likely crypto investors are more patient than usual, though we shouldn't take this as market stagnation.

The interest rate cuts (plus the weaker dollar) should become the biggest contributor to a crypto rally in the coming months. With inflation cooling down and investors growing a riskier appetite, this bull run might be one to remember.

Our Verdict - Fill Your Crypto Bags

Ever since the Bitcoin halving in April, everyone's waited with bated breath for the promised crypto rally. But not even the launch of $ETH ETFs (or their first-ever green weekly inflow) made that happen.

The rate cuts might be the breaking point the industry's been looking for. It might be a good time to fill your crypto bags, though remember to DYOR and stay away from FOMO.

ReferencesClick to expand and view references

• FedWatch US Interest Rate Analysis (FedWatch)
• Bitcoin Price Performance (CoinMarketCap)
• Ethereum Price Performance (CoinMarketCap)
• Jerome Powell Speech (Federal Reserve)
• Quinn Thompson X Post About the Fed Rate Cuts (X)
• QCP Capital Investor Note (QCP Group)

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