Crypto markets were volatile on Monday as investors awaited this week’s Federal Reserve rate cut decision.
According to Bitpush data, after climbing above $60,000 over the weekend, Bitcoin (BTC) retested the $58,000 support level on Monday and lost this important position. As of press time, Bitcoin is trading at $57,927, down nearly 3% in the past 24 hours.
Only three of the top 200 Altcoin by market cap rose more than 1%. LayerZero (ZRO) led the gains, up 2.4%, Theta Fuel (TFUEL) rose 1.7%, and io.net (IO) rose 1.1%. DOGS (DOGS) fell the most, down 13.1%, followed by Sei (SEI) and Echelon Prime (PRIME), down 13% and 10.8%, respectively.
The current overall market value of cryptocurrencies is $2.02 trillion, and Bitcoin’s market share is 56.6%.
In U.S. stocks, the S&P and Dow Jones closed higher, up 0.13% and 0.55% respectively, while the Nasdaq fell 0.52%.
25bp or 50bp?
While investors have been awaiting the first rate cut since the beginning of the year, analysts are divided on the impact of a rate cut on the economy and markets.
Brian Dixon, CEO of OTC Capital, noted: “The Federal Reserve is widely expected to implement a series of rate cuts starting in September 2024. Based on various analyses and market sentiment, the market generally believes that the Fed will cut interest rates by 25 basis points at the upcoming Federal Open Market Committee (FOMC) meeting. However, the discussion about the possibility of a 50 basis point rate cut has attracted attention, reflecting the uncertainty about the Fed’s response to recent economic data.”
Dixon said a 25 basis point rate cut "is likely to be seen as a cautious move by the Fed, signaling stability and moderation in monetary easing. This could lead to a mildly positive market reaction, with stocks likely to see a small uptick as borrowing costs fall, but without the shock of a larger rate cut."
But if the Fed cuts rates by 50 basis points, Dixon believes that this could signal to the market that the Fed is more concerned about an economic slowdown than previously thought, which could lead to increased market volatility, initially causing stocks to sell off due to concerns about economic weakness, but then recovering if it is interpreted as a preemptive move to prevent a further economic downturn.
“The choice between 25 basis points and 50 basis points will be closely watched as a barometer of the Fed’s economic outlook,” Dixon said. “A 25 basis point cut could be seen as maintaining the status quo, while a 50 basis point cut could be interpreted as the Fed playing catch-up or preemptively responding to unseen economic pressures.”
Uncertainty about the extent of the rate cuts has led to increased market volatility.
“From a technical analysis perspective this week, we remain within a flag pattern (blue line), which is the definition of the (4) wave (yellow line) of a larger third wave (orange line),” Ledn Chief Investment Officer John Glover said in a note.
He explained: “The longer this flag pattern persists, the more likely it becomes a ‘failure flag’ and Bitcoin price breaks below the bottom of the channel. Assuming the continuation pattern breaks out as expected, the target for wave 3 is $85,000–$95,000 before we see the next pullback (wave 4). The key level to watch on the downside remains $49,000, a break below which would spell huge losses for bulls. I still think the probability of this outcome is low.”
According to the latest CME "Fed Watch" data, traders are betting that the probability of the Federal Reserve cutting interest rates by 25 basis points in September is 33.0%, and the probability of cutting interest rates by 50 basis points is 67.0%.
Historically, Bitcoin has benefited from rate cuts
The crypto community is eagerly awaiting the first rate cut as history shows that rate cuts help fuel Bitcoin bull runs .
André Dragosch, head of research at ETC Group, noted: “During the last rate cut cycle, the Fed’s rate cuts and loose monetary policy stimulated the rise of Bitcoin and crypto assets in general. The Fed is expected to follow other major central banks in cutting interest rates, such as the European Central Bank, which recently cut its benchmark interest rate by a further 25 basis points - the second rate cut this year.”
Dragosch noted that “Fed funds futures already reflect a 125 basis point rate cut by December 2024, and a cumulative 10 rate cuts (about 250 basis points) by December 2025. Looking ahead, the Fed’s Summary of Economic Projections (aka the “dot plot”) will likely be in focus, revealing the Fed’s updated expectations for the so-called ‘terminal rate’ – the target fed funds rate that it expects to maintain over the long term at the end of the rate-cutting cycle.”
As bullish sentiment on the prospect of rate cuts grows, he said, “Bitcoin and other scarce crypto assets may currently be at the top of many investors’ ‘buy lists’ as these assets stand to gain excess profits from monetary policy easing.”
He noted: “We recently highlighted in our monthly report that improved monetary policy expectations will bring more positive news to Bitcoin and crypto assets in the coming months. In addition, the global money supply has reached a record high and is currently accelerating, which is also a very positive signal for the future performance of Bitcoin and crypto assets.”
Dragosch said the reason for their bullishness “is that Bitcoin bull markets have historically been associated with money supply expansions, while Bitcoin bear markets have been associated with money supply contractions. As a result, we expect more positive seasonality in Q4 2024 to align with the positive macro tailwinds noted above.”
TradingView analyst TradingShot believes that this is currently a seasonal cycle trend.
TradingShot said: “This chart is simple. Since July 2016, after each halving, Bitcoin has entered a choppy trading phase with high volatility, but it has managed to keep the 1W MA50 (blue trendline) intact and supported.”
He noted: “In the first week of October, it started the most intense phase of the cycle, the parabolic rally, which has been confirmed in the past two cycles, and so far we have experienced the post-halving shock, and the 1W MA50 has also been tested and maintained twice. With only 3 weeks left in October, it seems that (if this pattern continues to repeat) we are preparing for a very strong rally, which will be difficult to catch if you are not prepared now.”
