Crypto markets see signs of recovery as Federal Reserve hints at rate cut: analyst

Cryptocurrencies, led by Bitcoin, may be headed for a strong recovery as central banks, especially the U.S. Federal Reserve, prepare to ease monetary policy, according to market analysts.

The expected rate cut will inject new liquidity into financial markets, which is expected to drive rally in risk assets such as stocks and cryptocurrencies despite the current market uncertainty.

Still, analysts are advising traders to take a cautious approach due to the U.S. presidential election in November and ongoing uncertainty over fiscal policy. But broader sentiment on the cryptocurrency market points to a cautiously optimistic outlook as global central banks pivot to monetary easing, they said.

This was good news for market observers, who witnessed the blue-chip cryptocurrency fall late Tuesday night, leading to a surge in the liquidation of positions that had bet on prices rising. $170 million.

Benchmark cryptocurrency bitcoin is down about 6% from Tuesday's drop to $59,200, according to data from CoinGecko.

QCP Capital stressed on Tuesday that the declines in stocks and cryptocurrencies are likely to be “short-lived” as the Federal Reserve prepares to begin a rate-cutting cycle.

Last week, Federal Reserve Chairman Jerome Powell suggested the central bank could start cutting interest rates as early as next month, with markets pricing in three cuts this year.

“Increased liquidity will ultimately boost risk assets,” the Singapore-based digital asset trading firm said in an investor report. Note“We are finally on the brink of a rate-cutting cycle.”

This sentiment was echoed by analysts at blockchain analytics platform Nansen, who highlighted the possibility of a continuation of the bullish trend in the cryptocurrency market, buoyed by what they call the “Fed put.”

The term refers to the belief that the Federal Reserve will intervene to support the economy and financial markets, especially as inflation subsides and growth stabilizes.

“The crypto bull market has not yet been called into question,” Nansen said in a report on Tuesday, adding that “the most bullish driver is the 'Fed put' occurring in a weak growth, but not recessionary, environment.”

Despite the optimistic outlook, Nansen warned that rising equity valuations pose risks to the crypto market and could create “downside asymmetry” for risk assets.

Simply put, while the cryptocurrency market looks strong, there is concern that stock prices are currently too high, and if stock prices fall, this could have a greater negative impact on the cryptocurrency market than any benefits from rising stock prices.

However, the report suggests that current economic conditions still favor a cautious approach for investors, advising them to “reduce allocations to cryptocurrencies on the upswing and focus on major currencies,” including Bitcoin and Ethereum.