(Kitco News) – Cryptocurrency traders took a victory lap on Tuesday as token prices climbed higher while stocks and gold struggled in a reversal of the recent trend that saw cryptos lagging as equities and the yellow metal rallied to new highs.
The strong showing from digital assets comes as market watchers are intensely focused on this week’s Federal Open Market Committee (FOMC) meeting, where the Fed is expected to announce the first interest rate cut since 2020.
“This will be the first interest-rate cut in four years,” said Alice Liu, lead researcher at CoinMarketCap. “Currently, the market is pricing in about a 65% chance of a 50bps rate cut and a 35% chance of a 25bps rate cut, with some expecting a total of 100 bps in cuts by the end of the year.”
“The S&P 500 Index, Treasuries, and gold have typically risen when the Fed starts lowering rates,” Liu noted. “If we analyze six of the most recent rate cuts, the S&P 500 rose an average of 4.8% in response to the news. After the July 31, 2019, rate cut, gold began the month at around $1,400 per ounce and finished near $1,430 per ounce, resulting in a monthly increase of approximately 2%.”
As for the intense speculation surrounding the size of the rate cut, Liu said, “The size of the rate cut matters because it could lead to different market reactions. While a 25bps cut would likely boost markets, a 50bps cut might signal recession concerns, potentially triggering a deeper correction in risk assets.”
“Currently, with the Nonfarm Payroll numbers, the market might anticipate even further rate cuts this year, possibly beyond 50bps,” she noted. “If the rate cut is seen as a response to weakening economic conditions, it could raise concerns about future earnings growth, potentially leading to a short-term pullback in Bitcoin (BTC) and other crypto assets.”
“However, as we started this week, there have already been corrections in the market, with BTC dropping from 60.3k over the weekend to as low as 57.5k on Monday in reaction to the big Fed decision week,” Liu highlighted. “Even though the market has started to recover, it is still fluctuating around 5.99% in 7-day volatility.”
BTC/USD Chart by TradingView
Liu noted that over the course of the third quarter, “we witnessed a bearish trend across the crypto market. Factors like governmental wallet sell-offs, post FTX liquidations, the memecoin market crash, and the Fed rate decision, with other macroeconomic factors, created downward pressure. BTC has been testing new lows in the low $50k range, and the CMC Crypto Fear and Greed Index has been moving around 30-40 reflecting Fear in the market.”
But that could all change in the fourth quarter, she suggested, as various factors “could bring a shift toward more stability.”
“What the market really craves right now is predictability, and upcoming events like the U.S. election in November are likely to settle some of the uncertainty regardless of the outcome,” she said. “Historically, Q4 has often been a strong period for Bitcoin, and on average BTC has yielded 90.33% price increase in Q4 for the past 10 years.”
She suggested the Q4 performance for Bitcoin could surpass the averages as “we’re entering Q4 from a relatively low price level.”
“With these factors in mind, there’s a significant chance that we could see a price pump during the remainder of the year, potentially even pushing Bitcoin towards another all-time high,” Liu said.
Liu identified three “key factors that will drive price performance: Macroeconomic conditions, political influence, and institutional inflows.”
“Beyond just the Federal Reserve’s rate decisions, broader economic indicators – such as productivity indicators, unemployment data, and inflation – will play a crucial role,” she said. “If there are strong signs that the U.S. is headed for a recession, it will be difficult for Bitcoin to experience a sustained bull market. Investors may become more risk-averse, which could limit BTC’s upside potential.”
In the political realm, Liu said, “U.S. policies toward cryptocurrencies are also key. If we see favorable regulation or clear guidance, such as Bitcoin being viewed as a national reserve asset, it could further support price appreciation. On the flip side, stricter regulation or negative sentiment from policymakers could dampen enthusiasm.”
And regarding institutional inflows, she said “the level of institutional investment will be critical. The amount of capital flowing into Bitcoin ETFs and the broader crypto space will be a key indicator of market confidence. Strong institutional inflows could significantly boost BTC prices, potentially driving a more pronounced rally in the fourth quarter.”
According to Steven Lubka, Head of Swan Private at Swan Bitcoin, the fourth quarter will be positive for the cryptocurrency asset class regardless of the size of the rate cut.
“Bitcoin's price is likely to rally if the Fed cuts rates by 50 basis points, although this could be offset if the market views it as an emergency move,” he said in a note shared with Kitco Crypto. “A 25 basis point cut presents a more uncertain outcome, while no cut may lead to a short-term sell-off.”
“Looking ahead to Q4 2024, we anticipate Bitcoin performing strongly, bolstered by improving liquidity conditions,” Lubka said. “Additionally, the FTX bankruptcy is expected to return $16 billion to investors, providing them with liquidity that could be used to repurchase assets.”
Based on King Crypto’s performance on Tuesday, crypto traders appear excited about any rate cut as it’s expected to initiate the next up leg in the current bull market cycle and push BTC to a new record high.
“Bitcoin broke today forcefully above the 1D MA50 (blue trend-line) and marginally broke above the top (Lower Highs trend-line) of the Triangle pattern since July,” said TradingView analyst TradingShot. “With buying pressure coming aggressively after the 2nd rebound on the 1W MA50 (red trend-line) in just 1 month, if a 1D candle closes above the Lower Highs, we will have a strong break-out buy signal for the rest of the year at least.”
“In that case, we see the emergence of a Channel Up similar to the one that preceded March 2024, as a real possibility to test the 6-month Resistance Zone before the U.S. elections, then technical pull-back going into the event and then resuming the uptrend for the rest of the year,” he said. “The Target can be at least the 2.0 Fibonacci extension level at $90000.”
At the time of writing, Bitcoin trades at $60,300, an increase of 4.4% on the 24-hour chart.
While crypto traders enjoyed a green trading day, stocks struggled, with the Nasdaq finishing up 0.2% and the Dow closing down 0.12%, while the S&P was flat. At the time of writing, spot gold is down 0.50% on the session and trades at $2,569.10 per ounce.
Altcoins benefit from risk-on sentiment
All but a dozen or so tokens in the top 200 recorded gains on Tuesday as crypto traders took Wall Street’s certainty that a rate cut is coming as their cue to reengage with the riskier side of the digital asset ecosystem.
Daily cryptocurrency market performance. Source: Coin360
Dymension (DYM) was the biggest gainer, increasing 24.1%, followed by 15.6% gains for Immutable (IMX) and Celestia (TIA). Trust Wallet Token (TWT) took the biggest hit, falling 12.5%, while Helium (HNT) lost 5.3%, and Theta Network (THETA) declined by 1.7%.
The overall cryptocurrency market cap now stands at $2.08 trillion, and Bitcoin’s dominance rate is 57.1%.
