- On Wednesday, the Federal Reserve is expected to slash interest rates.
- Risk-on assets seen to benefit.
All eyes are on the Federal Reserve.
The US central bank is expected to announce a 0.25% drop in interest rates at the Federal Open Market Committee meeting on Wednesday, with analysts forecasting another 0.5% in cuts before the year is up.
“The case for an additional 75 basis points of rate cuts [0.75%] this year appears to be strengthening,” James Butterfill, CoinShares head of research, told DL News. “We expect 25 basis points in October and a further 50 basis points in December.”
The data backs him up.
The CME FedWatch tool shows a near 100% chance of a 0.25% cut in interest rates on Wednesday. It also puts almost a 100% chance of it cutting rates again at its December meeting.
Punters on crypto-betting platform Polymarket back that sentiment, giving it a 98% chance of a cut this month and a 89% chance for the December meeting.
The central bank’s meeting comes as investors position around a major geopolitical reset. US President Donald Trump is scheduled to meet Chinese President Xi Jinping in South Korea on Thursday, as the two sides attempt to hammer out a new trade deal to ease tensions.
Macro priced in
So how will that affect crypto prices?
Not much, according to Thomas Perfumo, crypto exchange Kraken’s global economist, who told DL news that the macro backdrop is the “dominant driver of this crypto cycle.”
In addition to Wednesday’s expected cut, “the market is pricing in one additional cut at the Fed’s December meeting,” Perfumo said.
“Despite periods of volatility the outlook remains broadly supportive as the Federal Reserve signals a renewed rate-cutting cycle.”
Trade war
Yet, tensions between the US and China add uncertainty to the Fed’s decision making.
Tariffs typically fuel inflation, which is an argument against rate cuts.
But they also slow economic growth by raising costs and disrupting supply chains, which would play in favour of cuts. The central bank is caught between fighting inflation and supporting growth.
None of that should affect Bitcoin, explained Butterfill, despite its recent price correction.
“The trigger of the correction, namely the US and China trade tariff announcements, poses a greater long-term risk to equities than to digital assets,” Butterfill said.
“Bitcoin, by contrast, remains relatively insulated.”
The logic is straightforward. Corporate earnings get squeezed when tariffs raise input costs and reduce consumer spending.
Bitcoin, however, has no earning to compress. Its value proposition as an inflation hedge and alternative to fiat currencies might even strengthen if trade wars escalate.
But the exact opposite has happened.
The cryptocurrency lost 10% in recent weeks as $19 billion in leveraged positions were liquidated amid Trump’s renewed interest in a trade war with China.
Today, it trades around $113,000, down over 10% from its all-time high.
Pedro Solimano is DL News’ Buenos Aires-based markets correspondent. Got a tip? Email him at psolimano@dlnews.com. Lance Datskoluo is DL News’ Europe-based markets correspondent. Got a tip? Email at lance@dlnews.com.