The U.S. Kicks Off a Rate-Cutting Cycle: Is the Crypto Market Facing a Storm or Opportunity?

On Wednesday afternoon local time, Federal Reserve Chairman Jerome Powell announced a 50 basis point cut to the benchmark interest rate, lowering it to the range of 4.75% – 5.0%, marking the start of a U.S. monetary policy easing cycle. The magnitude of the rate cut was in line with expectations from the CME FedWatch tool, and somewhat exceeded broader market expectations.

Following the announcement, BTC prices surged from a low of $59,473 to a high of $62,589, reflecting a 5.24% price swing. Over the past 24 hours, the total liquidation across the crypto market reached $199 million, with short positions accounting for $123 million.

Looking back at the historical data, the crypto market has only experienced one instance of a Federal Reserve rate cut. When the Fed initially announced rate cuts, BTC‘s price actually declined, only to rebound sharply after the rate dropped below 1.6%, triggering a bull market. Currently, despite the onset of the rate-cutting cycle, the Fed’s rates remain high, and market liquidity remains insufficient.

As the rate-cutting cycle begins, will the crypto market enter a bull run or face a major crisis？

The Key Question Lies in How the Rate Cuts Are Interpreted

To understand the trajectory of the crypto market, its crucial to determine whether the rate cuts are preventative or a response to an impending recession.

This rate cut exceeded the widely expected 25 basis points, with the Fed slashing rates by 50 basis points instead. Powell stated at the press conference that this does not signal an imminent recession in the U.S. economy, but rather a preventative measure aimed at maintaining the stability of the current economy and labor market.

However, market interpretations are divided: some view this as a preventative move to counter potential risks, while others worry it may be a sign of an impending economic recession.

Looking back at U.S. rate cut history, starting with a 50bp rate cut, has only occurred during times of economic or market emergencies.

Market Opinions

Hedge fund SkyBridge founder Anthony Scaramucci stated in an interview on Wednesday that the Fed might cut rates by 50 basis points tonight, which is part of at least 150 basis points worth of cuts over the next 18 months. He believes this will be good for asset prices both in the U.S. and globally. He predicts that Bitcoin will hit a new all-time high of $100,000 by the end of the year, driven by a series of Fed rate cuts and clearer U.S. cryptocurrency regulations.

Grayscale Investments Head of Research Zach Pandl, in an interview with Forbes two weeks ago, said, “Rate cuts in the context of a soft landing are quite unfavorable for the dollar but beneficial for assets like Bitcoin. Combining these factors, the market will likely explore new all-time highs in the coming months.”

Market maker Wintermutes OTC trader Jake Ostrovskis told Decrypt that rate cuts would mark a “pivot” in monetary policy and believes this could boost cryptocurrencies.

BitMEX co-founder Arthur Hayes argued that the Fed should not cut rates and suggested that the market will first crash after the cuts before entering a bull market, with ETH performing strongly throughout the rate-cut cycle.

According to market analysis, which asset is most likely to benefit from the Feds rate cut？

A) Bonds

B) Real Estate

C) Bitcoin and other risk assets

D) Oil