As a seasoned crypto investor with a knack for navigating market turbulence, I’ve seen my fair share of economic cycles and their impact on digital assets. The upcoming FOMC meeting is shaping up to be a critical event that could catapult the crypto market cap towards the elusive $4 trillion mark.
The upcoming Federal Open Market Committee (FOMC) meeting might play a crucial role in driving the total value of the cryptocurrency market towards $4 trillion. Investors are anxiously watching for the Fed’s decision on interest rates, and their choice could have substantial effects across different asset categories, including digital currencies. Given the current economic instability, cryptocurrencies are particularly responsive to adjustments in interest rates, so a potential rate reduction by the Fed could ignite a bullish trend within the crypto market.
When Is the FOMC Meeting?
The Federal Open Market Committee (FOMC) has scheduled its meeting for September 18th, where the anticipated announcement regarding interest rates is slated for 2:00 PM Eastern Time. During this gathering, we’ll gain insights into how the Federal Reserve plans to address inflation and stimulate economic expansion.
A trio of Democratic senators, headed by Elizabeth Warren, have advocated to Jerome Powell, the Federal Reserve Chair, to lower interest rates by 0.75 percentage points as a precaution against an impending economic recession in the U.S. Financial experts are attentively monitoring for a possible reduction of either 0.25 or 0.50 percentage points, signifying a notable change in the Federal Reserve’s established monetary policy.
What to Expect From the FOMC Meeting?
At this moment, the Federal Reserve’s preferred interest rate stands at a range of 5.25% to 5.50%. Yet, financial experts anticipate a possible rate decrease, as indicated by the FedWatch tool which suggests a 100% likelihood of such an adjustment.
There’s uncertainty about whether the Federal Reserve will choose a smaller (35% chance) or larger (65% chance) interest rate decrease, which would be the first reduction in four years. A larger decrease might suggest a proactive stance, implying that the Fed is taking strong measures to boost economic activity, while a smaller one could imply a more conservative strategy.
The decision made at the FOMC meeting could carry substantial weight on various financial sectors, notably for speculative assets such as cryptocurrencies, that typically thrive under conditions with reduced interest rates and increased liquidity.
FOMC Implications on Stocks, Oil, Cryptos, and 10-Year Treasury Yield
As an analyst, I’d express it this way: A rate reduction, be it 25 or 50 basis points, implies a decrease in interest rates. Such a move usually encourages borrowing and economic growth, given the increased attractiveness of riskier assets like stocks and cryptocurrencies. With reduced borrowing costs, businesses find it easier to fund their expansion plans, and individuals are more likely to invest, thus fueling an upward trend in asset prices.
However, the success of this strategy largely depends on whether the Fed can achieve a “soft landing”—lowering inflation without causing a recession. If the Fed manages this delicate balance, it could lead to a significant rally in both the stock and crypto markets.
From my perspective as a researcher, should the Federal Reserve’s efforts fall short in managing inflation or inadvertently cause an economic slump, it might provoke market instability and even escalate into a broader financial predicament. Notably, experienced analyst Arthur Hayes has forecasted a potential crypto market crash post the Fed’s meeting.
Crashing US Dollar, Oil, and Bond Yields Could Spark Crypto Market Rally
As per findings from Tastylive Research, Bitcoin‘s relationship with the S&P 500 is generally weak. However, this correlation becomes stronger when Bitcoin experiences significant fluctuations, such as increasing by over 5% or decreasing less than -5%.
The Block endorses this data, as the correlation between the Pearson value and Bitcoin price showed an increase during periods when Bitcoin’s price was rising, while it decreased when Bitcoin’s price experienced a cooling-off phase.
Starting from mid-March 2024, I’ve observed an unusual economic trend: The U.S. dollar, oil prices, and bond yields have been on a downward spiral concurrently. This pattern, which is not commonly seen, has caught my attention due to its potential implications for global markets.
Based on findings from Game of Trades study, this specific pattern usually predicts an approaching economic downturn, happening just nine times over the last 44 years. Notably, during each of these occurrences, both the traditional stock market and the crypto market exhibited notable surges.
In simple terms, the coinciding decrease in various assets (like bonds, oil, and the US dollar) during the years 2001, 2008, and 2020 indicates economic recessions. This broad economic slump often encourages investors to explore alternative investments such as cryptocurrencies since they are less dependent on traditional economic indicators. During a recession, capital tends to flow into crypto markets as investors look for opportunities in assets that may perform better under such economic conditions.
How Will the Crypto Market React to the FOMC Meeting?
The upcoming decision by the Federal Open Market Committee (FOMC) regarding interest rates might prove crucial for the cryptocurrency market. If the Fed decides to reduce interest rates, which hasn’t happened in four years, it could serve as a significant trigger for the crypto market. Already, investors are displaying increased optimism, with the Bitcoin Fear and Greed Index climbing from 33 to 45, suggesting they expect this possible policy adjustment to take place.
Previously, when interest rates decreased, it often resulted in a devaluation of the US dollar, making riskier investments like cryptocurrencies more attractive. Currently, as the Federal Reserve plans to lower rates, the dollar has been weakened – it’s already dropped by 5% since late June.
With conventional investment options such as savings accounts and bonds appearing less appealing, there’s a growing trend of capital shifting towards unconventional markets, one notable example being cryptocurrencies.
Conclusion
The upcoming Federal Open Market Committee (FOMC) meeting might prove crucial in shaping the trajectory of the cryptocurrency market. If they decide on a rate reduction, it could trigger increased risk-taking among investors, thus potentially fostering an environment where the crypto market could soar and reach a valuation of $4 trillion.
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2024-09-18 14:46