50 or 25 Basis Points? US Fed Rates to Shake Crypto Markets

Get ready for a market shake-up! As the Federal Reserve gets ready to announce its interest rate decision on September 18, 2024, market participants are facing significant uncertainty. The Kobeissi Letter has highlighted this uncertainty, projecting a 50 basis point cut with probabilities ranging from 2% to 59%. With such a crucial decision looming, various asset classes, including cryptocurrencies, are bracing for major movements.

But what will the Fed actually do? And how will the crypto market react? Read on to find out.

Will the Fed’s Cut Boost Cryptos?

Joe McCann, CEO of Asymmetric, a leading crypto hedge fund, has weighed in on the potential impacts of the Fed’s decision. The debate is whether the Fed will cut rates by 25 basis points (bps) or go for a larger 50 bps cut. With rates currently at a 24-year high of 5.5%, McCann believes a significant 50 bps reduction could boost risk assets like cryptocurrencies. Historically, big rate cuts have often led to rallies in riskier markets, sparking optimism among investors.

A Smaller Cut Could Hurt the Market

However, McCann warns that a smaller 25 bps cut might not benefit the crypto market. Much of the current market optimism is based on the expectation of a 50 bps cut. If the Fed chooses a smaller reduction, McCann predicts a decline in both equities and cryptocurrencies, which could trigger a broad sell-off across different asset classes.

What’s Fueling the Markets?

Market sentiment is strongly influenced by the Fed’s anticipated decision. Saad Ahmed, head of Asia Pacific at Gemini crypto exchange, points out that while the market might have already priced in the rate cut, a 50 bps reduction could spark a breakout in asset prices. Lower interest rates generally favor cryptocurrencies, which benefit from increased liquidity and a risk-on sentiment.

The Countdown is On!

McCann also challenges the view that a larger 50 bps cut would be bearish. He notes that past major rate cuts during economic crises have had varied effects on markets. In today’s stable economic environment, with GDP growth at 3%, a larger cut might have a positive impact, adding complexity to the market outlook.

As the Fed’s announcement approaches, its effect on the crypto market remains a hot topic. Whether the decision results in a surge or a setback, investors are keeping a close watch and preparing to react.

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50 or 25 Bps? The Clock is Ticking.