Fed Rate Cut Incoming! Will Bitcoin & Crypto Skyrocket?
All eyes are on the Federal Reserve as a rate cut is widely anticipated. The expected 25 basis point reduction on September 17th has many in the crypto world buzzing, particularly Bitcoin (BTC) and Ether (ETH) enthusiasts. But what does this mean for the future of cryptocurrency?
Crypto Market Anticipation
Recent options market data indicates a significant easing of downside fears for both Bitcoin and Ether. The pace of any upward movement in these cryptocurrencies will largely depend on the magnitude of the Fed's rate cut. While a 25 basis point cut is the general expectation, a surprise 50 basis point cut could trigger a substantial rally across BTC, ETH, and even SOL.
Bitcoin's seven-day call/put skew has rebounded significantly, signaling a shift away from bearish sentiment. Similar patterns are emerging in Ether's options skew, suggesting a broader market confidence.
Bitcoin Bulls and Bond Yields
Bitcoin bulls are optimistic that the anticipated easing will push Treasury yields sharply lower, encouraging increased risk-taking across the economy and financial markets. However, the situation is more complex than it appears. While the expected Fed rate cuts could weigh on the two-year Treasury yield, longer-term yields may remain elevated due to fiscal concerns and persistent inflation.
The Catch: Government Spending
The U.S. government is expected to increase the issuance of Treasury bills and notes to finance extended tax cuts and increased defense spending. This increased supply of debt will likely weigh on bond prices and lift yields, potentially offsetting some of the positive impacts of the rate cut on the crypto market.
As T. Rowe Price analysts noted, the U.S. Treasury’s move to issue more notes and bonds will pressure longer-term yields higher. Investors are already demanding higher yields to lend money to the government for extended periods due to these fiscal concerns. Keep an eye on the Fed's decision and the government's fiscal policy – they will be key drivers for the crypto market in the coming months.