1. Market Volatility Amid Fed Rate Cut Expectations
Over the past 1.5–2 months, markets have "fully priced in" expectations of Federal Reserve rate cuts. While the Fed didn’t cut rates in July, market expectations for a September reduction remain above 100%. This suggests the actual decision may have limited impact.
Fed Chair Powell’s recent speech indicates a shift toward balancing inflation control with economic growth—a positive signal. However, Powell emphasized needing consistent positive economic data before considering cuts, avoiding concrete commitments.
Discrepancies between Fed guidance and market pricing have created cyclical uncertainty, reflecting broader macroeconomic instability. Investors should focus on macro trends rather than individual earnings. Despite modest Fed policy shifts, equities, bonds, and gold are rallying, suggesting accurate market pricing.
👉 How Fed policies shape crypto markets
2. Divergent Logics: How Rates Affect Stocks vs. Bitcoin
| Asset | Primary Driver | Rate Sensitivity |
|---|---|---|
| U.S. Stocks | Gamma hedging/CTA flows | Low |
| Bitcoin | Liquidity conditions | High (short-term rates) |
Bitcoin’s performance hinges on long-term yields (e.g., 10-year Treasury). Rising yields hurt liquidity-sensitive assets like BTC, as they compete with yield-bearing instruments. Current U.S. fiscal policies—massive debt issuance—are exacerbating this pressure.
With long/short rate inversion and weak demand for long-dated bonds, Bitcoin faces headwinds. A sustained bull market requires lower long-term yields, unlikely in 2024.
3. ETF Hype and Arbitrage Risks
Bitcoin’s recent surge stems from ETF speculation, drawing $150–180B inflows:
- $60–80B: Arbitrage (spot-futures spreads)
- $50B: BTC moved into ETFs
- $50–60B: Long-term investors
- $30B: Active buying
ETFs reduce circulating supply, but sustained 10% premiums invite volatility. If arbitrage exits abruptly, prices could collapse.
4. Political Risks: GOP Policies and Bitcoin
Republican protectionism (e.g., Trump-era tariffs) may raise inflation, deterring rate cuts—a negative for liquidity assets. Immigration restrictions could further elevate inflation, pressuring BTC.
5. Treasury Issuance and Macro Fallout
The U.S. must issue long-term bonds to meet fiscal needs, per debt management rules (short-term debt capped at ~25%). Unlike Japan (58% bonds held by central bank), the U.S. can’t control long-term yields. Surging yields threaten global deleveraging, crushing assets like BTC.
6. Bitcoin as National Reserve? Unlikely
BTC lacks the utility of gold/oil for reserve status. Congressional approval hurdles and taxpayer skepticism make this improbable. Macro asset classification is more viable.
7. Hong Kong’s ETF Market: Slow but Promising
Most private banks don’t yet support Bitcoin ETFs. Efficient arbitrage requires prime brokers—currently scarce. ETH ETF approvals lag, delaying opportunities. Future bank participation (HSBC, JPMorgan) could boost liquidity.
👉 Crypto ETF strategies for 2024
8. BTC-Stocks Correlation: Liquidity Is King
Since 2021, crypto’s integration with traditional finance (e.g., stablecoins) heightened BTC’s ties to equities and Treasuries. Rising rates disrupted crypto’s internal capital cycles, stifling altcoins.
9. High Rates = Short-Term Crypto Winter
Persistent high yields suppress risk assets. A U.S. hard landing could prompt Fed intervention (QE, rate cuts), reviving crypto—but not yet.
10. Stock Market Crash: Crypto’s Double-Edged Sword
A tech-led equity collapse could devastate crypto. Subsequent Fed easing might later fuel a BTC/ETH rally.
11. Web3 Projects: Survival of the Fittest
Most altcoins face near-zero valuations due to illiquidity. Exceptions like Solana remain speculative.
12. Bitcoin Halving: Diminishing Impact
Halvings reduce supply but don’t guarantee bull markets. Prices depend more on volume and macro trends.
FAQ
Q: How do Fed rate cuts affect Bitcoin?
A: Cuts boost liquidity, aiding BTC—but long-term yields matter more.
Q: Are Bitcoin ETFs safe investments?
A: They carry arbitrage-driven volatility; premiums may vanish abruptly.
Q: Can Bitcoin become a reserve asset?
A: Unlikely due to political/utility constraints versus gold.
Q: Why are altcoins struggling?
A: High rates drain liquidity; most lack sustainable demand.
Q: When might crypto recover?
A: Needs lower long-term yields or Fed easing—possibly post-recession.