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Last night, a critical interest rate decision concerning cryptocurrencies was announced. More importantly, we saw that Powell provided significant signals regarding the rate cut trajectory. Ultimately, Bitcoin 
$104,420 rose back above $63,000, and cryptocurrencies turned green. How should we assess what we heard in the Fed meeting?
The Fed and What Comes Next
Historical data suggests we should worry about a risk market collapse similar to what occurred at the end of 2000 and 2007. However, what we have emphasized for weeks is that those collapses were caused not by interest rate cuts but by economic recessions. To illustrate, let’s remember the last major crisis. The difference between 2007 and today is that the crisis seen in 2007 was due to a significant debt bubble bursting.
Currently, the growth of household and business spending in the U.S. economy is proportional to income increases. Therefore, there is no scenario likely to trigger a recession. Although households have spent more of their increased incomes in the past year, this spending has come from reduced savings rather than increased borrowing.
This also indicates that household balance sheets are at some of their best levels in recent times. While most cycles have self-reinforcing elements, those primarily driven by debt are much more severe than those stemming from income growth and expectation changes. In summary, under today’s conditions, we may not see a significant recession risk coinciding with the Fed’s interest rate cuts.
Now, let’s return to last night. The Fed announced a decision that differed from the data in the Bloomberg survey released yesterday. Although market expectations recently shifted to a 50 basis point cut, only 9 out of 114 economists surveyed expected such a cut. This assumption stemmed from the belief that the Fed would not act hastily.
One of the most important details from the Fed meeting was the newly released dot plot. This shows the Fed members’ expectations for interest rate cuts over the next three years. In the June meeting, Fed members predicted rates could drop to 5.1% by the end of 2024, but now they’re targeting 4.4%. The median forecast for the end of 2025 is 3.4%, revised from June’s 4.1%. Thus, there’s largely a downward revision.
Expectations for Cryptocurrencies
Under current conditions, cryptocurrencies should rise as the cost of money starts to decrease, and we do not see clear recession alarms. The ongoing discussions for the last quarter have been in favor of a rise, and as we approach October, the Fed has laid the groundwork for this with a significant cut. The appetite in the risk markets needs to begin increasing again.
Historically, transitions to lower interest rates tend to be positive for Bitcoin and altcoins. On the other hand, we see new records in the U.S. stock markets. The excitement surrounding the beginning of the interest rate cut cycle has significantly attracted demand in the stock market.
However, current risks are not entirely eliminated. Geopolitical risks and the European Central Bank’s renewed inflation expectations for the last quarter could pose potential barriers to the bulls. Yet, we know that when the Fed began raising rates in 2022, the market declined accordingly. Now, the opposite should happen as the markets need to move in a completely different direction.
Employment, PMI, and inflation data remain important, but as rates begin to drop, one or even two months of surprising data is not expected to have a significant impact. The Fed waited this long to lower rates because they do not want to raise them again afterward, leaving only the chance of a pause. This suggests that we may finally see the light at the end of the tunnel, indicating that the nightmare of the past two quarters may be coming to an end. Despite this, all these views are merely predictions, and cryptocurrencies are always full of surprises.
