(Kitco News) – Monday was a mixed bag for asset prices as the highly anticipated interest rate cut from the Fed is due later this week. Analysts are divided on what it means for the economy and markets despite traders waiting since the beginning of the year for the first rate cut.
“The Federal Reserve is widely anticipated to initiate a series of rate cuts starting in September 2024,” noted Brian Dixon, CEO of OTC Capital. “The consensus, based on various analyses and market sentiments, leans towards a 25 bps cut at the upcoming Federal Open Market Committee (FOMC) meeting. However, there's a notable discussion around the possibility of a 50 bps cut, reflecting uncertainty about the Fed's response to recent economic data.”
Dixon said a 25 bps cut “would likely be seen as a cautious move by the Fed, signaling stability and a measured approach to monetary easing. This could lead to a moderate positive reaction in the markets, with stocks potentially seeing slight gains as borrowing costs decrease, but without the shock of a larger cut.”
Should they implement a 50 bps cut, that might “signal to markets that the Fed is more concerned about economic slowdown than previously thought, potentially leading to increased market volatility,” he warned. “This could initially cause a sell-off in equities due to fears of economic weakness, followed by a recovery if interpreted as preemptive action to stave off a deeper downturn.”
“The choice between 25 bps and 50 bps will be closely watched as a barometer of the Fed's economic outlook,” Dixon said. “A 25 bps cut might be seen as maintaining the course, while 50 bps could be interpreted as the Fed playing catch-up or preemptively acting against unseen economic pressures.”
For now, he noted that the uncertainty has caused a spike in market volatility.
“Bitcoin recently dipped below $59,000 but is showing signs of recovery, with some analysts predicting it could aim for $90,000 by year-end,” he noted. “This volatility may be attributed to market anticipation around potential Federal Reserve rate cuts, signaling a dovish monetary policy that could benefit risk assets like Bitcoin.”
The upcoming elections in the U.S. and abroad are also influencing markets, he added. “The 2024 elections across various regions are expected to influence the global regulatory framework for Bitcoin and crypto, potentially affecting market dynamics based on the outcomes. This geopolitical angle adds another layer of complexity to crypto market analysis.”
Data provided by TradingView shows that after climbing above $60,000 over the weekend, Bitcoin (BTC) retested support at $58,000 on Monday as the choppy price action of the past five months continued with little change in the overall picture.
BTC/USD Chart by TradingView
“Another week of relatively quiet markets has me yet again repeating myself in this week’s Technical Analysis,” said John Glover, Chief Investment Officer at Ledn, in a note to Kitco Crypto. “We remain within the flag pattern (blue lines), which is defining wave (4) (yellow line) of larger Wave III (orange line).”
“The longer this flag pattern continues the greater the potential that this becomes a ‘failed flag’ and Bitcoin prices fall through the bottom of the channel,” he warned. “Assuming that the continuation pattern breaks higher as expected, the Wave III target is $85k - $95k before we see the next pullback (Wave IV).The key level to watch on the downside remains at $49k, and a break below this level will bring a world of hurt to the longs. I continue to assign this outcome a low probability.”
At the time of writing, Bitcoin trades at $57,780, a decrease of 3.40% on the 24-hour chart. The S&P and Dow finished the day in the green, up 0.13% and 0.55%, respectively, while the Nasdaq lost 0.52%.
Bitcoin historically benefits from rate cuts
Following months of stagnant price action, the crypto community eagerly awaits the first interest rate cut, as history shows that rate cuts help drive Bitcoin bull markets.
“During the last rate-cutting cycle, Fed rate cuts and easy monetary policy, in general, have spurred a rally in Bitcoin and cryptoassets,” noted André Dragosch, Head of Research at ETC Group. “The Fed is expected to follow other major central banks with rate cuts such as the ECB which has just recently further reduced its key interest rates by 25 basis points – the 2nd rate cut this year.”
“Economists surveyed by Bloomberg expect the Fed to cut its target rate by 25 basis points this week and Fed Funds Futures traders also price in a 100% probability for at least a 25 basis points cut,” he added. “At the time of writing, traders also assess the probability for a 50 basis points cut in September at 59%.”
Dragosch noted that “Fed Funds Futures already price in 125 basis points in cuts until December 2024 and already 10 cumulative cuts (~250 basis points) until December 2025.” He said that moving forward, “A big focus will likely be on the Fed's Summary of Economic Projections (aka “dot plot”) which will reveal the Fed's updated expectations for the so-called ‘terminal rate’ – the Fed Funds Target rate expected to prevail at the end of the cutting cycle in the long run.”
With the building bullishness for rate cuts, he suggested that “Bitcoin and other scarce cryptoassets are probably on top of many ‘buy lists’ of investors right now, as these assets stand to profit over-proportionally from an easing in monetary policy.”
“We have recently highlighted in our monthly report that improving monetary policy expectations should provide an increasing tailwind for Bitcoin & cryptoassets over the coming months,” he noted. “Besides, the fact that global money supply has already reached a new all-time high and is currently accelerating is also a very positive signal for the future performance of Bitcoin and cryptoassets.”
Dragosch said the reason for their bullishness “is that Bitcoin bull markets have been associated with money supply expansions in the past, while Bitcoin bear markets have been associated with money supply contractions. Therefore, we expect the more positive seasonality in Q4 2024 to align with the abovementioned positive macro tailwinds.”
Channeling the popular Green Day song from the 90’s, TradingView analyst TradingShot said, “Wake me up when September ends…”
“Yes. Green Day's famous song suits Bitcoin just find under these circumstances,” he said. “What are they? Well, it is pure seasonality along its Cycles.”
“This chart is simple,” TradingShot said. “After every Halving since July 2016, Bitcoin enters a phase of choppy trade, with high volatility but it manages to keep the 1W MA50 (blue trend-line) intact and support.”
“Then on the first week of October, it starts the Cycle's most aggressive phase, the Parabolic Rally,” he noted. “This has been confirmed on the past two Cycles and so far on this one, we have already got the Post Halving Chop, while the 1W MA50 was tested and held twice. With October only 3 weeks away, it appears that (if this model keeps repeating itself) we are preparing for a very strong rally that will be difficult to catch if you don't position yourself now.”
Altcoins start the week in the red
It was a red start to the week for altcoins as only three tokens in the top 200 managed to post a gain of more than 1% on Monday.
Daily cryptocurrency market performance. Source: Coin360
LayerZero (ZRO) led the trio with a gain of 2.4%, while Theta Fuel (TFUEL) increased 1.7%, and io.net (IO) gained 1.1%. DOGS (DOGS) was the biggest loser with a decline of 13.1%, followed by losses of 13% and 10.8% for Sei (SEI) and Echelon Prime (PRIME), respectively.
The overall cryptocurrency market cap now stands at $2.02 trillion, and Bitcoin’s dominance rate is 56.6%.
