(Kitco News) – Federal Reserve Chair Jerome Powell may have successfully reignited the cryptocurrency bull market on Friday after his dovish comments at the Jackson Hole Central Bank Symposium all but guaranteed an interest rate cut in September.
“Policy adjustments are now necessary,” Powell stated during the Fed’s annual retreat. “The trajectory is clear, but the timing and pace of rate cuts will be guided by incoming data, the evolving economic outlook, and the balance of risks.”
While the Fed Chair made the last statement to inject some uncertainty as to when the first rate cut will come, Wall Street wasn’t fooled, as the CME FedWatch Tool shows that expectations for a 25 bps cut in September remain at 100%, while the odds of a 50 bps cut climbed above 36%.
Investors interpreted Powell’s statements as a signal to go risk-on, leading to price gains across financial markets. At the closing bell, the S&P, Dow, and Nasdaq finished in the green, up 1.15%, 1.14%, and 1.47%, respectively.
“With today’s market gains, the three major stock indices are on track to close the week on a positive note, despite some volatility,” said analysts at Secure Digital Markets. “Technology stocks led the rally, buoyed by investor optimism that a lower interest rate environment will favor this sector.”
At the time of writing, spot gold is up 1.03% and trades at $2,510.40 per ounce.
Data provided by TradingView shows that Bitcoin (BTC) bulls finally managed to push through bear resistance at $62,000 following Powell’s comments, driving the top crypto to a daily high of $63,875 in the afternoon.
BTC/USD Chart by TradingView
Prior to the breakout, MN Trading founder Michaël van de Poppe said that if BTC “breaks through $62K, that would be a sign for the markets to continue rallying this week.”
“We'll likely have that breakout, given the massive inflow we've seen in the ETF the past week,” Poppe added, correctly predicting the move higher for Bitcoin.
Market analyst Jacob Canfield posted the following chart highlighting the significance of the afternoon breakout above the stubborn resistance level.
“$BTC - This is not a drill,” Canfield said.
And market analyst Elija Boom noted the appearance of a golden cross on the Bitcoin 2-hour chart, noting that the last time it happened, Bitcoin climbed from $59,000 to $70,000 over a two-week period.
$BTC Golden cross formation ?
The last time it happened, #Bitcoin pumped from $59K to $70K in 2 weeks pic.twitter.com/xjhInpl8Fk— Elja (@Eljaboom) August 23, 2024
At the time of writing, Bitcoin trades at $63,710, an increase of 5.11% on the 24-hour chart.
Lower interest rates to be a boon for risk assets
The market's euphoria following Powell’s comments is understandable, as investors have been waiting for a rate cut since before 2024 started. However, the move suggests an underlying fear by the central bank that the economy is headed for trouble, and the jubilation seen on Friday could soon turn to a mixture of excitement for asset prices and unease for the general state of the world.
“Looking ahead, historical trends show that when the Fed cuts rates, it’s often in response to underlying issues in the markets or economy, typically leading to a market correction or recession,” said John Haar, Managing Director at Swan Bitcoin. “However, this time is different.”
“Various market segments have already been insulated from high rates: corporations that borrowed heavily at historic lows in 2020 and 2021, homeowners with long-term fixed-rate mortgages from that same period, and banks that utilized the BTFP program to mitigate rate hikes,” he explained. “Additionally, the federal government is engaging in deficit spending at levels akin to those seen during recessions, effectively pre-stimulating the economy. As of now, stocks are modestly higher, US Treasury yields are lower, and Bitcoin” is well into the green on the day.
“Personally, I expect assets such as U.S. stocks, real estate, gold, and Bitcoin to perform well over the next 6-12 months,” Haar concluded. “This expectation is based on the Fed's rate cuts, a gradual easing of consumer price inflation without dropping below 2%, the absence of a clear economic recession, continued massive federal spending, and the Fed's plan to increase its balance sheet again in 2025.”
“Generally, a rate cut bodes well for risk-on assets, which have historically enjoyed the expansion of the investor appetite as borrowing costs decrease,” said Leena ElDeeb, Research Associate at 21Shares.
“The last time the Federal Reserve cut rates was to weather the pandemic repercussions in March 2020, where they cut rates by 150 basis points (bps) to reach near-zero levels,” she noted. “The total crypto market cap increased by about 450% towards the end of the year, and Bitcoin’s price surged by 200% in the same time period. While the Federal Reserve is anticipated to cut rates by 25-50 bps in September, the historical context can provide a gauge for crypto’s sensitivity.”
“Alongside the rate cut, another major catalyst for Bitcoin’s breakout is global central banks’ liquidity, measured by M2,” ElDeeb said. “Bitcoin typically hits its lowest point a few months before the global M2 money supply bottoms out. Bitcoin’s price then surges rapidly, often outpacing liquidity growth, and later undergoes a mid-cycle correction as the market realigns.”
She concluded her note by highlighting that “Last week, the Federal Reserve added $2B to its balance sheets. While past performances aren’t indicative of future prices, the presence of Bitcoin spot exchange-traded funds (ETFs) in the world’s biggest financial market is a key catalyst for this scenario.”
According to Gracy Chen, CEO of cryptocurrency exchange Bitget, rate cuts will be the stimulus that propels the crypto bull market into overdrive.
“The reduction in recession risk and the Fed's rates are positive drivers for Bitcoin's growth, as easing monetary policy typically supports risky assets like cryptocurrencies and gold,” she said. “During periods of monetary tightening and economic slowdown, investors usually seek safe, risk-free options for preserving their funds. Conversely, when money is cheap in the markets and economic activity is increasing, market participants are more inclined to take higher risks by investing in stocks, commodities, and other assets, including cryptocurrencies.”
She noted that the Fed’s decision on interest rates is not the only factor putting a bid under Bitcoin; other factors, some negative, could also help propel BTC higher.
“Beyond the Fed's rate cuts, geopolitics remains a significant factor in determining Bitcoin prices,” she said. “Ongoing conflicts in the Middle East and Eastern Europe, along with rising tensions between the US and China, suggest that demand for safe-haven assets will continue to support Bitcoin prices in the short to medium term.”
“The upcoming U.S. presidential election in November and positive statements by candidates are also expected to have a favorable impact on the crypto market,” Chen added. “Additionally, institutions and governments are anticipated to continue increasing their digital asset reserves, which should further support BTC prices.”
“Currently, the market is balanced between negative and positive news. Factors such as payments to Mt. Gox creditors and the US government's sale of Bitcoins confiscated from the Silk Road marketplace are putting significant pressure on the market. Buyers lack new momentum, and sellers are hesitant to push the price below $50,000,” she concluded. “As a result, we can expect a trading range of $59,000 to $64,000 by the end of August. However, in September, Bitcoin may surpass the $70,000 mark, with its peak price likely occurring in the fourth quarter of this year.”
Sea of green in the altcoin market
Altcoins also received a boost from Powell’s dovish comments, with all but three tokens in the top 200 recording gains at the time of writing.
Daily cryptocurrency market performance. Source: Coin360
Sun (SUN) was the dominant performer, with an increase of 55.3%, followed by gains of 26.2% and 25.8% for SATS (1000SATS) and Popcat (POPCAT), respectively. BinaryX was the biggest loser, falling 3.1%, while MX Token (MX) fell 0.8%, and Helium (HNT) lost 0.7%.
The overall cryptocurrency market cap now stands at $2.24 trillion, and Bitcoin’s dominance rate is 56%.
