Joe McCann, CEO of crypto hedge fund Asymmetric, believes a large interest rate cut by the U.S. Federal Reserve would benefit crypto markets. While the market awaits the Federal Reserve’s announcement of its rate decision soon, some believe the rate cut will be bearish for crypto.
However, McCann believes a 50 basis point cut could boost risk assets like cryptocurrencies, while a smaller 25 bps cut might be bearish.
Fed Rate Decision: What It Means for Crypto?
The U.S. Federal Reserve is expected to lower interest rates for the first time since 2020. According to the CME Fed Watch Tool, there is a 65% chance of a 50 bps cut and a 35% chance they will cut by 25 basis points. This probability has influenced market expectations.
Joe McCann, founder and CEO of the Asymmetric hedge fund, says a 50 basis point (bps) rate cut would positively impact cryptocurrencies. He mentioned, “If the Fed cuts by 50 bps, risk assets like crypto will likely rise.”
— ◢ J◎e McCann 🧊 (@joemccann) September 18, 2024
McCann noted that when the futures markets price an outcome with over 70% confidence, it usually has a 100% success rate. However, he warned that a smaller cut of around 25 bps could harm the stock and crypto markets.
“I think if the Fed cuts 25 basis points, the equities markets will take a serious hit. Crypto will likely fall along with that,” says McCann.
A 50 BPs Rate Cut: A Game-Changer for Crypto?
A 50 bps cut would be significant for risk assets. McCann believes such a move would “bring risk-on sentiment back.” He argued that a large rate cut could drive liquidity into the market, benefitting cryptocurrencies.
Moreover, McCann emphasized that recent media coverage and comments from former Fed officials have pushed expectations toward a 50 bps cut.
Global macro strategist Boris Kovacevic believes that the Fed cutting rates by 50 or 25 basis points (bps) doesn’t make a big difference in the long run. The reason is that it takes time for the effects of a rate change to fully impact the economy.
However, Kovacevic explained that the size of the cut does matter for the Fed’s image. Choosing a 50 bps cut might signal that the Fed knows something about potential recession risks that investors aren’t aware of yet.
Is the Fed’s Move Different This Time?
While some believe a large rate cut signals deeper economic concerns, McCann disagrees. He pointed out that previous rate cuts were made during financial crises, but the current economy is stable.
With a 3% GDP growth, McCann believes today’s situation is different. He argued that a 50 bps cut could reduce interest payments for the U.S. Treasury and stimulate the economy into 2025.
However, in a recent X post, the CEO of WhaleWire, Jacob King, said that although rate cuts may sound positive, they signal deeper concerns, like diminishing borrowing, investment, and spending.
King added that the 2008 global financial crisis is a major issue everyone thinks about but does not directly mention. Despite these concerns, McCann remains optimistic. He believes the Fed’s move will help crypto markets, especially with risk-on sentiment returning.
Disclaimer: The opinions expressed in this article do not constitute financial advice. We encourage readers to conduct their own research and determine their own risk tolerance before making any financial decisions. Cryptocurrency is a highly volatile, high-risk asset class.
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