Will the FOMC have a positive impact on the cryptocurrency market?

The September 18th meeting of the US Federal Open Market Committee (FOMC) is a key event for investors in cryptocurrencies and other financial markets. The Fed has not cut interest rates in four years, so this rate cut meeting is crucial and could be the catalyst for cryptocurrency market capitalization reaching $4 trillion.

When is the FOMC meeting?

of FOMC Meeting Scheduled for September 18, the interest rate decision is expected to take place at 2 pm ET. The meeting will likely reveal the Fed's approach to managing inflation and economic growth.

Three Democratic senators, led by Elizabeth Warren, have called on Fed Chairman Jerome Powell 75% interest rate cut To protect the U.S. economy from a recession, the Fed will cut interest rates by 25 or 50 basis points. Investors are watching closely for a possible 25 or 50 basis point cut, which would be a major shift from the Fed's longstanding policy.

What to expect from the FOMC meeting?

Currently, the Federal Reserve's target interest rate is between 5.25% and 5.50%. However, analysts are predicting a rate cut is possible, and the FedWatch tool is showing: 100% chance of reduction.

The only question is whether the Fed will choose to cut rates by 25 bps (35% chance) or 50 bps (65% chance), marking its first cut in four years. A 50 bps cut would be seen as a more aggressive stance and signal the Fed is acting decisively to stimulate economic growth, while a 25 bps cut could suggest a more cautious approach.

The outcome of the FOMC meeting will have a major impact on financial markets, especially risk-on assets such as cryptocurrencies, which tend to perform well in an environment of low interest rates and high liquidity.

How the FOMC will impact stocks, oil, cryptocurrencies and 10-year Treasury yields

Whether it's a 25bps or 50bps cut, a rate cut means lower interest rates, which typically stimulates borrowing and economic activity. This scenario generally favors risk-on assets like stocks and cryptocurrencies, as investors seek higher returns in these markets. Lower borrowing costs make it easier for companies to fund expansion and for individuals to invest, driving up asset prices.

However, the success of this strategy depends heavily on the Fed achieving a “soft landing” — lowering inflation without triggering a recession. If the Fed can manage this delicate balance, we could see significant upside for both the stock and crypto markets.

On the other hand, if the Fed's actions fail to contain inflation or trigger a recession, it could lead to increased market volatility and a broader financial crisis. Cryptocurrency crash looms After the Fed meeting.

US Dollar, Oil, and Bond Yield Plummet Could Cause Crypto Market Surge

According to Tastylive Research: There is little correlation between Bitcoin and the S&P 500The exception would be if Bitcoin made a large move upwards (+5%) or downwards (less than -5%).

The block stores this data BTC Pearson correlation increases When Bitcoin prices are soaring, the price of BTC will fall as it settles down.

Since mid-March 2024, an unusual economic pattern has emerged in which the US dollar, oil prices, and bond yields have all fallen simultaneously.

According to a Game of Trading study, this pattern usually follows: Impending recession And this has only happened nine times in the past 44 years. In each of these instances, the stock market, and therefore the cryptocurrency market, experienced a significant upswing.

The simultaneous decline of assets is a sign of recessions in 2001, 2008 and 2020. The simultaneous decline of bond yields, oil and the US dollar indicates a broader economic slowdown, which tends to drive investors into alternative assets such as cryptocurrencies. In a recessionary environment, more capital typically flows into cryptocurrencies as investors seek opportunities in assets that are less dependent on traditional economic performance.

How will the cryptocurrency market react to the FOMC meeting?

The FOMC interest rate decision could be a key moment for the cryptocurrency market. If the Fed cuts interest rates, it will be the first cut in four years and could be a powerful catalyst for the cryptocurrency market. Investors are already showing signs of optimism, with the Bitcoin Fear and Greed Index rising. From 33 to 45 In anticipation of this potential policy shift.

Historically, lower interest rates lead to a weakening of the US Dollar, creating a favorable environment for riskier assets such as cryptocurrencies. Now, with the Fed set to cut interest rates, the US Dollar has already fallen, dropping 5% since late June.

As traditional investments such as savings accounts and bonds become less attractive, more capital will flow into alternative markets, including cryptocurrencies.

Conclusion

The upcoming FOMC meeting could be a major turning point for the cryptocurrency market, as a rate cut will likely stimulate risk-on assets, creating favorable conditions for the cryptocurrency market to surge towards a $4 trillion market cap.

Frequently Asked Questions (FAQ)

The Federal Open Market Committee (FOMC) is the Federal Reserve Board's body responsible for setting monetary policy, including interest rates. Its meetings are very important as they influence the state of the economy and affect asset markets such as stocks, bonds, oil, and cryptocurrencies.

The FOMC meeting, which decides interest rates, is crucial for financial markets. Analysts predict a 100% chance of an interest rate cut, but there is uncertainty about the size (25 basis points or 50 basis points). The outcome will impact global financial markets, and an interest rate cut could spur an upswing in both stock and crypto markets.

If the Federal Reserve weathers the economic downturn and cuts interest rates, the cryptocurrency market capitalization could soar and reach $4 trillion thanks to increased liquidity, a weaker dollar, and growing investor interest in alternative assets.

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