Cryptocurrencies moved up today as investors anxiously await the conclusion of the Federal Reserve’s September meeting tomorrow.
Cryptocurrencies moved higher today ahead of a major decision by the Federal Reserve tomorrow on whether or not to lower interest rates by a quarter or half point.
The price of Bitcoin (BTC 2.98%), the world’s largest cryptocurrency, traded roughly 5.4% higher, surpassing $61,000, while the price of Ethereum (ETH 1.00%), the world’s second-largest currency, traded 4% higher, trading just above $2,350. The price of the altcoin Fantom (FTM 2.25%) traded 9.3% higher at roughly $0.57, as of 2:35 p.m. ET.
A 50-basis-point hike?
Traders have upped their bets on the Fed lowering interest rates by a half point tomorrow. CME Group‘s FedWatch tool now assigns a 65% likelihood of the Fed cutting by a half point and a 35% chance of a quarter-point hike. That’s not only higher than yesterday but a complete reversal from sentiment last week when there was a 66% chance the Fed would only lower interest rates by a quarter point.
A 50-basis-point hike should benefit cryptocurrencies because lower interest rates tend to boost investment in riskier assets and result in a weaker dollar, an environment in which Bitcoin and other cryptos have historically performed well.
In more specific crypto news, former President Donald Trump and his family released new details surrounding the family’s crypto project. The entity will be launched by a company called World Liberty Financial and is being pitched as a crypto platform that people can use to borrow, lend, or invest in various cryptocurrencies. Trump spoke on the social media platform X about the new venture and said it would be open to the public and that there would also be a token called WLFI.
Trump has 90 million followers on X and has the influence to get people interested in various stocks or business ventures, as he has demonstrated in the past. This could be adding exposure to the crypto sector today.
Prepare for volatility tomorrow
The rate cut debate ahead of tomorrow is likely the main event impacting cryptocurrencies today and I think investors should be prepared for volatility because there is the possibility that the Fed only does a 25-basis-point cut tomorrow, disappointing those who were hoping for a quicker return to a risk-on environment.
Right now, it’s going to boil down to what the Fed views as its highest priority. The Fed has a dual mandate of controlling prices and promoting maximum employment. The organization has done a pretty good job of controlling prices by slowing inflation to 2.5%, which is closing in on its 2% goal. But now the Fed is starting to grow concerned about the labor market.
Last month, the Sahm rule was triggered, which occurs when the unemployment rate over a three-month moving average increases by 0.5% from the lowest three-month moving average within the last year. The Sahm rule has been an accurate predictor of recessions in the past.
“The likely path for the Fed is for the 50-(bps) cut this time, really adhering to the principles of data-dependence,” Claudia Sahm, an economist and the creator of the Sahm rule, said at a Reuters forum today. “There was quite a bit of labor-market data, all in one direction, and it was not good. This is a Fed that has been very much behind the maximum-employment side of the dual mandate.”
Still, it’s hard to say that the U.S. economy is in a recession. This morning, new data showed that U.S. retail sales increased 0.1% in August, ahead of expectations of a 0.2% decline. Additionally, July retail sales figures were revised higher.
Ultimately, a quarter-point hike tomorrow could send crypto prices tumbling but I still like Bitcoin and Ethereum as long-term investments. I don’t have interest in altcoins like Fantom at this time.
Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.
