Will Crypto Ride Macro Optimism?
With TradFi indices like the tech-heavy NASDAQ-100 pushing towards new all-time highs, Cryptocurrencies are still busy recovering from the weekend’s dump. Thankfully, the TradFi market momentum seems poised to give tokens room to run.
A weakening yet resilient labor market has traders now wagering that the Fed’s battle against inflation is complete, leaving them to assume that America’s Central Bank will soon begin cutting interest rates. On Wednesday, the Fed announced it would leave interest rates unchanged yet again.
Currently, markets are pricing in a 46% chance that rate cuts begin as soon as March 2024, with a 31% chance there will be two cuts by this time, and expect the Fed to cut interest rates a total of 5 times in 2024.
Rates falling in conjunction with a resilient labor market leads participants to increasingly disregard recessionary concerns, leaving risk assets (like crypto and stocks) with only one way to move: up!
History tells us to expect periods of prolonged economic weakness when interest rates fall; however, until such an outcome presents itself as unavoidable, markets will continue to strengthen on anticipation that falling costs of capital will further loosen business conditions.