What effect will the key rate cut have on cryptocurrencies?
Following the speech by US Federal Reserve Chairman Jerome Powell on August 22, the likelihood of a rate cut in America has increased, and this event could impact the cryptocurrency market.
There are two opposing views among experts regarding the consequences of the key rate cut. A trader known by the pseudonym Ash Crypto was among the supporters of the bullish rally:
In the fourth quarter of this year, the US federal government will start printing money. Together with two likely rate cuts, this will cause an influx of capital in the amount of several trillion dollars into the crypto market. We are on the threshold of a phase of parabolic growth of the altcoin rate, during which they will increase in price by 10-50 times.
Head of Research at 10x Research Markus Thielen has a different view and believes that a rate cut will, on the contrary, lead to a fall in the value of virtual currencies amid concerns about an economic recession. In this case, only Bitcoin, considered digital gold.
Employees of the analytical firm Santiment are also in no hurry to rejoice at the news of a possible reduction in the key rate. In their opinion, the euphoria caused by this news has most likely peaked and will soon begin to decline. Therefore, the bullish mood of traders may come to an end. In addition, the rise in the stock price provoked by Powell’s speech is capable of shifting the focus of attention from digital assets to the rising securities of American enterprises.
Number of US government monetary policy discussions (blue chart)
Given these factors, it makes sense to prepare for the start of a bearish trend, which should hit the cryptocurrency market in the fall, according to the cycle theory. The downward trend is long overdue, because the level of capitalization of digital assets has been growing since January 2023, subject to only short-term corrections.
