What the Fed rate decision means for crypto prices

The Fed left interest rates unchanged on Wednesday, with investors now awaiting a decision in September that is expected to deliver the first rate cut since March 2020.

Traders are pricing in a 100% chance of at least a 25 basis point cut in interest rates and about a 14% chance of a 50 basis point cut. Fed Chair Jerome Powell said on Wednesday that a possible 50 basis point rate cut was “not something we’re thinking about right now,” and signaled that any upcoming decision would continue to hinge on incoming economic data. The price of Bitcoin and Ethereum fell late Wednesday despite gains in stocks.

However, according to Ikigai Asset Management founder Travis Kling, the decline in interest rates will largely support digital asset prices and signal the environment that should encourage crypto investors.

“Every major central bank in the world is now starting an easing cycle and we’re actually the last one… That’s the backdrop where you want to own Bitcoin,” Kling told Coinage on Wednesday. “I think macro monetary policy is going to be one of a number of tailwinds for crypto through the end of this year.”

Historically, a decline in interest rates has coincided with a recovery in risky assets, including cryptocurrencies. But this year presents a somewhat new application of this data, given the launch of ETFs for both Bitcoin and Ethereum. Both of these additions, combined with the Bitcoin halving last spring, present a somewhat unprecedented setup for the crypto market.

But Kling said it was hard not to be optimistic about which way prices could go given supportive economic policies.

“I’m still operating under the assumption that cheaper, lower interest rates and easier monetary policy will encourage asset prices on the margin and stimulate the economy,” he said.

Kling largely echoed the bullish sentiment Coinage heard from Fundstrat’s Sean Farrell earlier this week, noting that a positive turn in net inflows for Ethereum ETFs could be a sign of growing confidence among crypto investors. Outflows from Grayscale’s Ethereum Trust appear to have slowed for the second day in a row, while inflows from other Ethereum ETFs continue to grow.

“You’re seeing real inputs into other instruments, so there’s demand for that,” Kling said. “It seems to me that some of the outputs are drying up pretty quickly, that there’s relatively strong clear inputs going on, and that’s just [winds up] “It’s a really attractive entry point for ETH.”

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