Cryptocurrencies experienced notable gains today as investors anticipate a key Federal Reserve decision on interest rates scheduled for tomorrow. Bitcoin (CRYPTO: BTC), the largest cryptocurrency by market capitalization, surged approximately 5.4%, trading above $61,000. Ethereum (CRYPTO: ETH), the second-largest, rose 4%, reaching just over $2,350. Additionally, the altcoin Fantom (CRYPTO: FTM) saw a significant increase of 9.3%, trading around $0.57 as of 2:35 p.m. ET.
Market Expectations for the Fed’s Decision
Traders have adjusted their expectations, with growing anticipation that the Federal Reserve will implement a 50-basis-point rate cut tomorrow. According to CME Group’s FedWatch tool, there is a 65% probability of a half-point reduction and a 35% chance for a quarter-point cut. This shift marks a reversal from last week’s sentiment, where there was a 66% likelihood of only a quarter-point decrease.
A substantial rate cut is generally favorable for cryptocurrencies, as lower interest rates tend to encourage investment in riskier assets and lead to a weaker dollar—conditions under which Bitcoin and other digital currencies historically thrive.
Trump’s Crypto Venture Sparks Interest
In related news, former President Donald Trump and his family unveiled details about their new cryptocurrency project. The initiative, spearheaded by World Liberty Financial, aims to create a platform for borrowing, lending, and investing in various cryptocurrencies. Trump announced the project on the social media platform X, highlighting the introduction of a new token, WLFI. With Trump’s significant social media following, the project could drive increased interest and exposure in the crypto sector.
Volatility Expected Ahead of Fed’s Decision
The impending Fed decision is likely to influence cryptocurrency markets significantly. Investors should brace for potential volatility, especially if the Fed opts for a less aggressive quarter-point cut, which could disappoint those hoping for a more substantial boost to risk assets.
The Federal Reserve faces a complex decision balancing its dual mandate of controlling inflation and promoting maximum employment. Recent data shows inflation nearing the Fed’s 2% target, but there are growing concerns about the labor market. The Sahm rule, an indicator of recession risk triggered last month, highlights these labor market concerns. Economist Claudia Sahm, who created the rule, suggested a 50-basis-point cut may align with the Fed’s data-dependent approach, reflecting ongoing challenges in the labor market.
Despite these uncertainties, the U.S. economy shows some resilience, with August retail sales rising by 0.1%—better than the anticipated 0.2% decline—and July figures revised upwards.
While a quarter-point rate cut could lead to declines in crypto prices, Bitcoin and Ethereum remain favorable long-term investments. However, the outlook for altcoins like Fantom is less promising at this time.
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