Bitcoin and Solana Outlook: Analyzing the Impact of the Anticipated Fed Rate Cut
The cryptocurrency market, particularly Bitcoin (BTC) and Solana (SOL), is closely watching the upcoming Federal Reserve (Fed) rate decision, scheduled for September 17th. Recent options market data indicates a significant easing of downside fears for both BTC and Ether (ETH). The magnitude of the expected rate cut will play a crucial role in determining the next upward trajectory for these cryptocurrencies.
Options Market Signals Reduced Downside Fears
Data from Amberdata shows that Bitcoin's seven-day call/put skew has rebounded to near zero, recovering from a bearish 4% the previous week. Similarly, the 30- and 60-day option skews, while still slightly negative, have risen from recent lows, indicating a notable decrease in concerns about potential price declines. Ether’s options skew displays a comparable trend. These skews reflect the market's directional bias, with a positive skew suggesting bullish sentiment and a negative skew indicating demand for downside protection.
The Fed's Rate Decision: A Pivotal Moment
The renewed upswing in Bitcoin and Ether prices precedes the Fed’s anticipated rate decision. Current market expectations, according to CME's Fed funds futures, heavily favor a 25 basis point (bps) rate cut, bringing the target range to 4%-4.25%. However, a surprise 50 bps cut remains a slight possibility. Bitcoin has already gained over 4% to reach above $116,000 in the last seven days, while Ether has increased by nearly 8% to $4,650, as per CoinDesk data.
Expert Perspectives on the Potential Impact
Greg Magadini, director of derivatives at Amberdata, suggests that a surprise 50 bps rate cut would trigger a substantial positive reaction for ETH, SOL, and BTC, calling it a "+gamma BUY signal." He also anticipates a significant surge in gold prices. He also notes that SOL options are showing strong bullish sentiment with call options at 4-5 volatility premium compared to puts.
Conversely, if the Fed implements the expected 25 bps cut, Magadini expects a steady, gradual increase for BTC. He suggests that ETH might require another week or so to retest all-time highs and convincingly surpass the $5,000 mark.
Broader Market Context and Long-Term Outlook
The Fed’s decision occurs as major asset classes like the S&P 500, Bitcoin, and gold trade near or at all-time highs. Experts point out the central bank's challenge of balancing price stability and maximum employment, particularly with core inflation above 3.10% and a potentially weakening labor market. A 25 basis point rate cut is currently assigned a 94% probability by CME’s FedWatch tool.
Peter Chung, head of research at Presto Research, highlights the importance of Fed Chair Powell’s commentary following the rate decision, suggesting it could significantly influence market reaction. Other analysts focus on the "dot plot," a quarterly chart of Fed policymakers' interest rate projections, cautioning that a cut without a downward revision could lead to an altcoin pullback. Xu Han, director of Liquid Fund at HashKey Capital, expects a large and mid-cap altcoin rally if the dot plot sees aggressive downward revision.
Derek Lim, head of research at Caladan, warns that anticipating the quarter-point rate cut has resulted in "stretched valuations across multiple asset classes." He also points out that a hawkish surprise from Powell could challenge the Fed's price stability mandate.
Caladan estimates that Bitcoin shows a bullish outcome 62% of the time within three months post rate cut, with an average gain of 16.50%. HashKey Capital projects Bitcoin to reach $700,000 by 2035, assuming a 10% CAGR in the gold price, reflecting a belief that the cryptocurrency will catch up with gold over the next decade.
Schiff's Skepticism Amidst Market Activity
Peter Schiff, co-founder of Echelon Wealth Partners, has commented on Bitcoin's recent performance, noting that it has lagged behind stocks despite both hitting record highs. He points out that the correlation between Bitcoin and the Nasdaq has decreased, even as gold has reached new record highs above $3,600. Schiff suggests that investors have sold Bitcoin and that it is time for Bitcoiners to "change horses."
Schiff also argues that the Federal Reserve is poised to make a "major" policy mistake by lowering interest rates amidst rising inflation. Despite Polymarket bettors indicating a high probability (92%) of a rate cut, Schiff believes the Fed should be implementing another rate hike to combat the current economic conditions.
