Will FOMC Positively Impact Crypto Markets?

The September 18, US Federal Open Market Committee (FOMC) meeting is a key event for crypto and other financial market investors. Since the Fed has not slashed rates in four years, this rate cut meeting is critical and could catalyze crypto market capitalization to hit $4 trillion.

When Is the FOMC Meeting?

The FOMC meeting is set for September 18, with the interest rate decision expected at 2:00 PM ET. This meeting will reveal the Federal Reserve’s approach to managing inflation and economic growth. 

Three Democratic senators, led by Elizabeth Warren, have urged Fed Chair Jerome Powell to cut rates by 75 basis points to protect the U.S. economy from recession. Investors are closely watching for a potential 25 or 50-basis point cut, marking a significant shift in the Fed’s long-standing policy.

What to Expect From the FOMC Meeting?

Currently, the Federal Reserve’s target interest rate is between 5.25% and 5.50%. However, analysts are predicting a potential rate cut, with the FedWatch tool showing a 100% probability of a reduction.

The only question is whether the Fed will opt for a 25-bps (35% chance) or 50-bps (65% chance) cut, marking the first rate decrease in four years. A 50-bps cut would be seen as a more aggressive stance, signaling that the Fed is taking decisive action to stimulate economic growth, whereas a 25-bps cut may indicate a more cautious approach.

The outcome of the FOMC meeting will have significant implications for financial markets, particularly for risk-on assets like cryptocurrencies, which tend to perform well in environments of lower interest rates and higher liquidity. 

FOMC Implications on Stocks, Oil, Cryptos, and 10-Year Treasury Yield

A rate cut—whether 25 bps or 50 bps—would signal lower interest rates, which typically stimulates borrowing and economic activity. This scenario generally favors risk-on assets like stocks and cryptocurrencies, as investors seek higher returns in these markets. Lower borrowing costs make it easier for companies to finance expansion and for individuals to invest, thus driving up asset prices.

However, the success of this strategy largely depends on whether the Fed can achieve a “soft landing”—lowering inflation without causing a recession. If the Fed manages this delicate balance, it could lead to a significant rally in both the stock and crypto markets. 

On the other hand, if the Fed’s actions fail to tame inflation or trigger an economic downturn, it could lead to market volatility and potentially a broader financial crisis. Seasoned analyst Arthur Hayes predicts an incoming crypto crash after the fed meeting.

Crashing US Dollar, Oil, and Bond Yields Could Spark Crypto Market Rally

According to Tastylive Research, there is little correlation between Bitcoin and the S&P 500. An exception occurs when Bitcoin makes a large move to the upside (+5%) or more to the downside (less than -5%).

The Block supports this data as the BTC Pearson Correlation increased during times when Bitcoin price is surging drop when BTC price cooled down.

Since mid-March 2024, a rare economic pattern has emerged, with the US dollar, oil prices, and bond yields all declining simultaneously. 

According to Game of Trades research, this pattern typically signals an impending recession and has occurred only nine times in the past 44 years. In each of these instances, the stock market—and by extension, the crypto market—experienced a significant upward movement.

This confluence of declining assets signals the 2001, 2008, and 2020 economic downturns. The synchronized drop in bond yields, oil, and the USD indicates a broader economic slowdown, which often pushes investors towards alternative assets like cryptocurrencies. A recessionary environment typically drives more capital into crypto, as investors seek opportunities in assets that are less tied to traditional economic performance.

How Will the Crypto Market React to the FOMC Meeting?

The FOMC decision on interest rates could be a pivotal moment for the crypto market. If the Fed cuts the interest rates, it would be the first in four years, and could act as a powerful catalyst for the crypto market. Investors are already showing signs of optimism, with the Bitcoin Fear and Greed Index rising from 33 to 45 in anticipation of this potential policy shift.

Historically, lower interest rates lead to a weaker US dollar, creating favorable conditions for riskier assets such as cryptocurrencies. Now, with the Fed set to cut rates, the dollar is already slumping — down 5% since late June.

As traditional investments like savings accounts and bonds become less attractive, more capital flows into alternative markets, including crypto. 

Conclusion

The upcoming FOMC meeting could serve as a major turning point for the crypto market. A rate cut would likely stimulate risk-on assets, creating favorable conditions for the crypto market to surge toward a $4 trillion market cap.