There’s growing optimism within the crypto community about the possibility of interest rate cuts by the U.S. Federal Reserve later this year.
Some experts think that this could present risks for the market, particularly for Bitcoin investors.
Don’t hurry!
Justin Elliot, a portfolio manager at Caldwell Investment Management shared that the market may be prematurely betting on a rate cut from the Fed.
In an interview with Bloomberg, Elliot expressed concerns that the market’s pricing in of 100 basis points worth of rate cuts by the end of the year might be an overreach. He suggests there is little evidence to support such a drastic move.
Elliot points out that while inflation is indeed trending in the right direction, the economy is cheered as robust, with retail sales showing strong performance.
This resilience could mean that the economy might not soften as much as some expect,so the forecasts are maybe too optimistic.
Elliot also warns that the anticipated level of aggression from the Fed in cutting rates may be overestimated. This is particularly important for Bitcoin investors, as the price often reacts sharply to changes in interest rates.
Higher interest rates make safer investments like bonds more appealing, possibly drawing capital away from riskier assets like Bitcoin.
Conversely, lower rates tend to push investors toward higher-risk investments, benefiting assets like Bitcoin. If they won’t cut rate, what would start the bull market?
Inflation, the magic number
Elliot’s remarks come right after the release of July’s Consumer Price Index, the CPI data, which showed a year-over-year increase of 2.9%.
This is the slowest pace of inflation since 2021. It’s positive inflation news, but Bitcoin’s price took a hit, dropping around 3% to fall below the $60,000 mark, settling at $58,800, in time of writing
This decline in Bitcoin’s price was likely due to weakening hopes for a more dovish stance from the Fed, suggests Eliézer Ndinga, head of strategy and business development for digital assets at 21Shares.
Optimism is here
Fair to say, despite the news, optimism within the crypto community remains high. Many still believe that a Fed rate cut is on the horizon, potentially as soon as September.
Andre Dragosch, head of research at ETC Group, shared on social media that the continued deceleration of U.S. inflation strengthens the case for a rate cut.
Today‘s US CPI inflation is essentially a non-event.
Just confirms what real-time data from @truflation & money supply data have been signaling for a while now.
Most importantly:
US inflation will continue to decelerate, further strengthening the case for Fed rate cuts. pic.twitter.com/CwowuR0D9N
— André Dragosch, PhD | Bitcoin & Macro ⚡ (@Andre_Dragosch) August 14, 2024
Similarly, Michael van de Poppe, founder of MN Trading, noted that positive CPI data increases the likelihood of both a rate cut and a potential rally for Bitcoin.
