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Crypto markets remain stagnant despite expectations of Fed rate cuts, with analysts warning that monetary easing alone is unlikely to drive a recovery.
Analysts question whether monetary easing will act as a catalyst for market recovery, despite traditional financial markets responding positively to falling interest rates.
In an Aug. 23 research report, the analysts highlighted that while traditional markets have reacted favorably to a decline in long-term interest rates, the crypto sector remains largely unresponsive. This is due to specific supply-side factors and the absence of strong market narratives.
“The lack of crypto-specific narratives largely leaves the asset class dependent on macroeconomic factors to drive performance.”
Analysts pointed to several factors inhibiting a market rally, including the ongoing distribution of Bitcoin from the Mt. Gox rehabilitation process and the U.S. government’s continued sell-off of seized crypto assets. Additionally, the broader market’s reliance on macroeconomic indicators has left crypto traders hesitant to deploy capital ahead of the Federal Reserve’s September meeting.
Crypto at risk of macro pressure with no catalysts
Despite the market’s anticipation of easier monetary policy, analysts warn that the pace and context of any rate cuts will be crucial. A gradual easing in response to controlled inflation could support markets, while more aggressive cuts in response to economic downturns may have the opposite effect.
However, they downplayed the likelihood of Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Economic Symposium providing significant market direction.
“We doubt his comments will have a large impact on risk markets, as the statements at this conference don’t tend to have significant forward-looking implications.”
Instead, market participants are likely to shift their focus to forthcoming labor market data, particularly in light of recent downward revisions to employment figures suggesting a cooling job market. The analysts caution that they “do not believe that rate cuts are a market catalyst per se,” emphasizing that the market’s future performance will hinge on broader macroeconomic trends and crypto-specific factors.
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