Originally published on: September 18, 2024
**Introduction**
A chief of a crypto hedge fund has highlighted that a substantial interest rate reduction by the US Federal Reserve could have a positive impact on risk assets and the crypto markets, contrary to the bearish sentiment some may hold.
**Asymmetric Views on the Fed Rate Cut**
Asymmetric’s founder and CEO, Joe McCann, expressed uncertainty between a 25 or 50 basis point cut, as the Federal Reserve gears up to potentially lower rates from the current 24-year high of 5.5%. The odds in the Fed futures markets suggest a 70% probability of an outcome that historically tends to materialize with 100% accuracy.
**Market Expectations and Impact on Crypto**
There is a prevailing 65% likelihood of a larger 50 basis point cut according to the CME Fed Watch tool, with media coverage and statements from former Fed governors influencing this sentiment. McCann argues that a lower 25 basis point cut may not bode well for the crypto markets, whereas a 50 basis point cut could offer a favorable outcome for risk assets, including crypto.
**Insights into Market Sentiment**
Gemini’s head of Asia Pacific, Saad Ahmed, believes that while the market may have factored in the rate cut, it could lead to a breakout. A 50 basis point cut could reignite a risk-on sentiment in the market, offering potential avenues for growth and investment opportunities.
**Historical Precedents and Market Stability**
Contrary to common belief, McCann refutes the idea that a 50 basis point cut would be bearish. He draws parallels to past instances like the 2008 financial crisis, the dot-com bubble of the mid-1990s, and the 1987 Black Monday crash, where rate cuts were deemed essential for economic stabilization. Notably, the current economic landscape is characterized by a robust economy with stable growth factors such as the 3% GDP growth.
**Outlook and Rationale Behind a Larger Rate Cut**
The rationale behind advocating for a 50 basis point cut includes stimulating growth beyond the current year, alleviating net interest payments for the US Treasury, facilitating mortgage refinancing, and safeguarding against potential economic uncertainties ahead of the upcoming presidential election.
**Conclusion**
In a time of unprecedented market uncertainty surrounding the Fed’s interest rate decision, the potential impact of a significant rate cut on the crypto markets remains a focal point for industry experts and investors alike. As the market dynamics evolve, the crypto sector could witness a surge in activity and investment opportunities propelled by the Federal Reserve’s monetary policy adjustments.
