(Kitco News) – Financial markets rallied higher in afternoon trading on Wednesday after the Federal Reserve held interest rates steady – as was widely expected – with Fed Chair Jerome Powell providing a boost in sentiment after he laid the groundwork for an interest rate cut in September.
While Powell said the Fed has "made no decisions about future meetings and that includes the September meeting,” he noted that “the broad sense of the committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate.”
The decision to lower interest rates will depend on inflation falling or coming in line with expectations, growth remaining reasonably strong, and the labor market remaining consistent with current conditions, he said. If that criteria is met, Powell said he “think[s] a rate cut could be on the table in September.”
Markets responded positively to Powell's comments, with stocks, crude oil, gold, and silver all climbing higher, while the DXY and U.S. 10-year Treasury yield declined.
At the closing bell, the S&P, Dow, and Nasdaq were all green, up 1.58%, 0.24%, and 2.64%, respectively. At the time of writing, gold trades at $2,494.30, an increase of 1.73% on the session, and silver is up 1.96%, trading at $29.09.
Data provided by TradingView shows that Bitcoin (BTC) bulls made several attempts to rally higher on Wednesday, including a rally to $66,830 after Powell’s comments, but were met with stiff resistance from bears each time and failed to retake higher support levels.
BTC/USD Chart by TradingView
At the time of writing, BTC trades at $64,694, a decrease of 2.12% on the 24-hour chart.
“BTC is now in defensive mode, while the Japanese Yen has strengthened in the forex market following the Bank of Japan's interest rate hike and liquidity-tightening measures,” said analysts at Secure Digital Markets. “Traders are bracing for more volatility with major U.S. tech firms set to release earnings this week.”
Gold and interest rates as a proxy for Bitcoin performance
“A rate cut in September would provide a sense of bullishness and could generally increase liquidity in the market, which will be positive for Bitcoin and other cryptocurrencies as investors seek higher returns outside traditional assets,” said Jag Kooner, Head of Derivatives at Bitfinex, in a note to Kitco Crypto. “This could lead to upward pressure on Bitcoin's price and increased ETF inflows as investors look to capitalize on a more favorable environment for risk assets.”
“There is a lot of confidence in the market at the moment particularly as even potentially negative news like the Mt. Gox Distribution, German government selling and a lot of recent significant on Chain movements have not been able to substantially impact the Bitcoin price to the downside,” he added.
While Kooner is looking at interest rates and large Bitcoin distributions to make forward-looking projections on Bitcoin performance, market analyst CryptoCon highlighted BTC’s correlation with gold as one potential indicator, though gold investors might not like what he had to say.
“The #Bitcoin bull market starts where the Gold bear market begins,” declared CryptoCon. “It's been 208 weeks since the last Gold bear market pinnacle, others have been triggered at 196 and 213 weeks.”
“Not much longer now for the big flip and Bitcoin bull run,” CryptoCon said.
While the chart provided by CryptoCon does show that Bitcoin has a history of rising as gold price falls, there are also instances where they both rise in tandem, like in 2020, which was also the last time the Federal Reserve lowered interest rates in response to the COVID pandemic.
With the Fed widely expected to start lowering interest rates again in September, it's possible that both assets could simultaneously run higher once again. Based on the analysis from CryptoCon, crypto traders should be on the lookout for a blow-off-top type move from Bitcoin once the price of gold tops out and starts to trend lower.
But with the U.S. national debt recently surpassing $35 trillion and showing no signs of slowing, it’s possible that both Bitcoin and gold could perform differently from previous bull market cycles as the fate of the US dollar as the world’s reserve currency comes into question.
In the near term, analysts at wavetraders.com see Bitcoin playing catch up to gold as the top crypto has stagnated in recent months while gold rallied to a new all-time high.
Remember BTC/GOLD ratio chart from July 04? After a completed projected wave 4 correction, seems like wave 5 is now progress. So as expected, #Bitcoin is now outperforming and catching up #gold. It may stay so until ratio hits all-time highs for wave 5. https://t.co/qddk4sAM7g https://t.co/1wheiDepdr pic.twitter.com/Pp1KR6K4nB
— Wavetraders.com - Elliott Wave Service (@ewforecast) July 31, 2024
Altcoins struggle to hold recent gains
The majority of altcoins in the top 200 recorded losses on Wednesday amid a widespread pullback following the comments from Fed Chair Powell.
Daily cryptocurrency market performance. Source: Coin360
Centrifuge (CFG) was the top gainer, increasing by 9.3% to trade at $0.482, followed by a gain 8.3% for cat in a dogs world (MEW), and a 6.8% for Beam (BEAM). JasmyCoin (JASMY) led the losers with a decline of 7%, while AIOZ Network (AIOZ) and Book of Meme (BOME) each lost 5.4%.
The overall cryptocurrency market cap now stands at $2.36 trillion, and Bitcoin’s dominance rate is 54.9%.
