Following the release of July meeting notes from the U.S. Federal Reserve, Bitcoin (BTC) surged to a new trading price in 24 hours by recording a trade at $60,817.01 with over 1.36% increased value, according to CoinMarketCap data improvements on Thursday morning Retrace. Ether (ETH), the digital currency of Ethereum, also experienced a slight increase in price, which stood at $2,605 at this time (+0.35%). Bitcoin has primarily been trading sideways in the past six weeks. However, a sudden spike following the Federal Reserve’s hint at a likely interest rate cut by September and China devaluing its currency to help with the trade war brought investors back into the crypto market.
Market Reactions to the Federal Reserve’s July Meeting Minutes
Many Federal Reserve officials judged during their July meeting that recent rate cuts could keep the economic expansion humming if trade uncertainty and inflation tensions kept easing. The dovish tone encourages those who believe in a more favorable monetary policy environment. The focus now shifts to Fed Chair Jerome Powell, who is due to speak at the back end of the week Friday during the Jackson Hole Monetary Policy Symposium, where he could give more color on when and how quickly we might see cuts.
Market conditions are looking ripe for a short squeeze.
BTC perps notional open interest has jumped by 30k BTC since August 13, with consistent negative funding rates.
Average weekly funding rates have hit their deepest negative since March ’23. pic.twitter.com/jk6xpRbW0k
— Vetle Lunde (@VetleLunde) August 22, 2024
The crypto market, meanwhile, is beginning to look prime for a short squeeze, as reported by Vetle Lunde, Senior Analyst of K33 Research. Starting August 13th, Bitcoin perpetual contracts (BTC) were traded, open interest surged by 30K BTC, and simultaneously, the funding rate remained overwhelmingly negative. In a significant drop, the average weekly funding rates are at their most harmful levels since March 2023. This situation indicates that Bitcoin currently has a large number of sellers with shorts, paving the way for even greater gains in its price rally if these positions are squeezed and forced to close.
Background: The Federal Reserve’s Rate Hike Campaign
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In 2022, in response to the highest inflation levels in about four decades due to economic disruptions associated with the COVID-19 pandemic, The Federal Reserve started aggressive rate hikes. Indeed, the rally even sent Bitcoin to new all-time highs and helped many altcoins recover. Initially, these rate hikes were bearish for both traditional stocks and cryptocurrencies since higher borrowing costs are typically adverse to investing in riskier assets. But since then, stocks and cryptocurrencies have recovered, boosted by the rising A.I. sector and acceptance of Bitcoin ETFs, which are winning decent investments in U.S. equities and the crypto market.
The Federal Reserve’s Progress on Inflation
The reduction of inflation to a 2% target set by the Fed seems underway. The minutes of the July meeting said that inflation had moderated over 12 months, with additional progress toward attaining the Committee’s target observed this year. This reduction in inflation has made for a more conducive macroeconomic climate for risk-carrying assets like Bitcoin, which typically outperforms during subdued inflation conditions and lower interest rates.
Market Implications of Bitcoin’s Price Rise
An increase in Bitcoin’s price recently represents a wider market movement towards risk, which is common among investors during anticipation periods of softer monetary policy. Should the Federal Reserve move ahead with a September rate cut, it would serve to drive interest further—and demand—for Bitcoin’s future price and of altcoins as well, such as discounts that carry low barrier fees in other sectors outside of traditional finance.
While the macro conditions are improving, equities and gold both have outperformed cryptocurrencies this year. While the S&P 500 sits near a half-decade high, gold is making new peaks almost daily. This split would seem to indicate that the prospect of lower interest rates is still benefiting cryptocurrencies (like Bitcoin) but has failed to spill over into traditional assets, which are seen as safer by many investors; this could be a sign that markets have yet to focus on fiat hyperinflation risks.
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The advance toward $60,817.01 demonstrates an increasingly bullish mood in the cryptocurrency sector, with expectations of a future interest rate cut by the Federal Reserve triggering some speculative flows across all assets except for bonds, and crypto is not resenting as demand continues to rise. Investors are driving this price action, anticipating a more accommodative monetary policy ambiance, and this release of the July meeting minutes has given them some cheer. Bitcoin price could experience more volatility as the market awaits additional signals from Fed Chair Jerome Powell at this week’s Jackson Hole Symposium. Still, the more significant trend is that after one of their worst 6-month stretches ever — crypto has recaptured investors’ attention in what could be a prolonged period of lower-interest rate world.
