Bitcoin and altcoins made a strong comeback after US Federal Reserve Chairman Jerome Powell hinted that interest rates would start falling in September.
Bitcoin (BTC) jumped to $64,000 on August 24, while Ethereum (ETH) rose to $2,765. The total market cap of all coins rose by about 5% to over $2.26.
The same trend has been seen in the stock market, with major indices such as the Dow Jones, S&P 500, and Nasdaq 100 nearing all-time highs. However, there is a risk that gains in the stock market and cryptocurrencies will be short-lived.
Buy the rumor and sell the news
The market was already pricing in September rate cuts after the recent drop. Weaker than expected US job numbers. The probability in Federal Reserve Rate Watcher The tool has been up over 80% in the last three weeks.
Therefore, Powell’s statement was merely a hint of what to expect at the next meeting, scheduled for September 18. As such, with the full rate cut in mind, there is a risk that stocks and cryptocurrencies will fall as investors sell off the news.
This trend has happened several times. For example, Bitcoin’s value fell by about 10% after its halving, while Ethereum’s value has fallen by double digits since the SEC approved ETFs.
Stock prices typically fall sharply after the Federal Reserve starts cutting interest rates. Jaeger Capital, a conservative commentator on X.com, cites 2001 and 2002 as examples.
On the positive side, stocks have performed well when the Fed has started cutting rates, as we saw in 2020 during the early stages of the COVID-19 pandemic.
Another positive is that these cuts come at a time when US companies are reporting strong results. Earnings growth.
Financial markets witness inflows
Another reason cryptocurrencies may fall after the Fed starts cutting interest rates is that low-risk money market funds are still seeing inflows.
The data shows that these funds had more than 90 billion dollars In the first half of August, net inflows surged even as expectations of rate cuts rose. These funds now hold more than $6.2 trillion in assets.
The theory was that risky assets like cryptocurrencies and stocks would see more inflows as investors capitulated in the money market.
This rotation is likely to happen, but it will take some time, because interest rate cuts are likely to be gradual.
Bitcoin still making lower highs
Bitcoin has surged to $64,000 after falling to $49,000 earlier this month. However, this price action has yet to reach a full breakout level as it has been in this range for the past few months.
It is worth noting that Bitcoin has been forming a series of lower highs since March. The first high was at $73,800, followed by $72,000 and $70,000. Therefore, a full bullish breakout will be confirmed if the coin surpasses the first high at $73,800. Before that happens, there is a risk that Bitcoin will resume the downtrend.
On the positive side, a series of lower highs and lower lows has created a falling expanding wedge pattern, a common bullish signal.
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