🌎 Federal Reserve Rate Cut Proposal as Crypto Markets See Major Dip

Wharton professor Jeremy Siegel has proposed an emergency rate cut by the Federal Reserve as liquidity concerns impact both cryptocurrency and global markets amid recession fears.

Cryptocurrency markets experienced a significant drop, losing over $300 billion within 24 hours. Major assets like Bitcoin and Ethereum saw substantial declines, with Bitcoin falling by 10.39% and Ethereum by 16.3%. Traditional markets, including the S&P 500 and Nasdaq, also suffered, with the U.S. stock market losing $1.93 trillion as trading commenced on Monday, August 5.

Siegel has recommended that the U.S. Federal Reserve implement a 75-basis-point emergency interest rate cut to alleviate the global liquidity crunch. This move could theoretically provide the necessary relief for American financial markets. Increased liquidity on Wall Street might trickle into crypto markets, potentially stabilizing prices and supporting digital asset valuations.

Institutional investors are already showing interest in crypto-backed funds. Spot Bitcoin exchange-traded funds (ETFs) recorded $1.3 billion in trading volume within the first 20 minutes of trading. This suggests that investors might buy the dip, leading to positive inflows.

20 mins into the trading session and Bitcoin ETFs have already seen $1.3bn in volume — this is extremely elevated.

Meanwhile, users on the Polygon-based decentralized prediction market, Polymarket, have placed $3.3 million in bets regarding potential Fed interest rate cuts this year. The second-largest wager anticipates three 75-basis-point cuts between August and December. The Federal Open Market Committee has scheduled meetings in September and November, with the market pricing in a potential rate cut next month.

For three rate cuts to occur before the end of 2024, the Federal Reserve would need to announce an emergency policy shift due to global market downturns. It remains uncertain whether the Fed will adopt such an aggressive stance or how cryptocurrency markets will respond to changes in the fund rate.

Prior to last week’s global recession concerns, rate cuts were generally seen as a positive development by crypto proponents.