Last week, US Federal Reserve chair Jerome Powell indicated that “the time has come” for monetary policy easing, all but confirming interest rate cuts are on the horizon in September.
“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” Powell told attendees at the Jackson Hole Symposium, hosted by the Federal Reserve Bank of Kansas City over the weekend.
Following the chair’s dovish remarks, bitcoin rallied, rising from US$60,600 on Friday, 23 August, to above US$64,000 on Sunday.
Crypto ETFs were also some of the top-performing assets in the lead-up to the announcement, according to data from Global X.
Namely, in the week ending 23 August, the DigitalX Bitcoin ETF (BTXX), Monochrome Bitcoin ETF (IBTC), and Global X 21Shares Bitcoin ETF (EBTC) all saw one-week returns of between 3 and 4 per cent.
The VanEck Bitcoin ETF (VBTC), meanwhile, returned 4.5 per cent over the week and the Betashares Crypto Innovators ETF (CRYP) delivered an impressive 6.1 per cent.
Explaining the movement, Marc Jocum, investment strategist at Global X, noted that investors had been wanting to see a shift in the Fed’s rhetoric, which Powell delivered.
“The market is pricing in pretty much a 100 per cent chance of a cut in September … whether it’s a 25 basis point cut or a 50 basis point cut, any rate cut is normally quite good for risk assets,” Jocum told InvestorDaily.
“That’s simply due to the academic arithmetic that lower interest rates or a lower discount rate, when you calculate the long-term value of an asset, helps boost their prices overall.”
Jocum added that Powell’s comments injected an “animal spirit” into the market.
“When there are these animal spirits, cryptocurrencies are really towards the far right end of the spectrum when it comes to risk. So it does bode quite well for those prices to potentially rise over time,” he said.
He noted that Powell’s comments have come at an opportune time for crypto markets, as the asset class has celebrated several wins in recent weeks.
“ETF demand continues to soar. In the US, year to date, we’ve seen over $18 billion going into US bitcoin ETFs,” he said.
“Locally, we’ve seen over $100 million come into [bitcoin] ETFs this year, last month alone was $30 million.
“Then you’ve also got an election cycle as well, and you’ve seen the likes of Donald Trump, who’s very much for cryptocurrency in terms of mainstream adoption and more accessibility.”
Highlighting ETFs as a strong point of exposure to crypto, Jocum pointed out that Morgan Stanley recently expanded its platform in the US to include bitcoin ETFs, potentially further fuelling market momentum.
“So there’s a lot of tailwinds going into it.”
Bitcoin retreats
Despite these tailwinds, bitcoin’s price lost its weekend gains in a matter of days, slipping below US$60,000 on Tuesday.
While the cause for those movements isn’t always immediately clear, Jocum suggested that liquidations in the futures market, particularly from adjacent cryptocurrencies like Ethereum, could have played a part.
“There may also be a fear of oversupply, given the US government’s [bitcoin] holding,” he said.
Last month, Trump revealed he plans for the US to become the “crypto capital of the planet” by maintaining a “strategic national bitcoin stockpile” on home soil, with the presidential hopeful stating that he will “never sell” the nation’s more than 200,000 bitcoin amassed from seizing assets through law enforcement action.
“Whenever there’s an oversupply in the market, giving us a scarce asset, that could impact prices,” Jocum said.
But the recent price decline could also just be a sign of the season, Jocum added, noting that August is generally a “quiet month” for crypto.
“Even though we have seen a bit of a decline in cryptocurrency prices, I mean, bitcoin is still up 30 per cent to 40 per cent year-to-date and over 100 per cent over the past 12 months,” he said.
