Last week, the crypto world was abuzz after Federal Reserve Chairman Jerome Powell delivered his speech at the annual Jackson Hole economic symposium. During his speech, Powell had hinted toward possible rate cuts that could happen in the month of September and since rate cuts have been historically bullish for risk assets, this quickly triggered a rapid bullish response from the community.
The initial excitement was strong, but recent developments suggest that expectations for a September rate cut may be softening. According to the CME Group’s FedWatch tool, market sentiment has become more cautious.
Probability Of Rate Cuts Drops From 92% To 75%
Earlier in August, the FedWatch tool indicated a striking 92% probability of a September rate cut. After July passed with no changes, all eyes were on the next Federal Open Market Committee (FOMC) meeting on September 17. At that time, there was only a 7.8% probability that the Fed would keep rates the same, and 0% probability of a rate increase.
However, as September approaches, expectations have shifted.
“According to the FedWatch, there is now a 75% probability that the Federal Reserve will institute rate cuts on September 17.”
This is a notable change from earlier forecasts, suggesting the market is taking a more conservative stance. The tool now shows a 25% probability that rates will be maintained, while the chance of a rate hike remains at 0%, reflecting no expectation of an aggressive shift.
Why Rise In Optimism Could Affect Crypto
Despite the declining probability, optimism about a possible rate cut remains elevated. Data from Santiment highlights that social media mentions of fed,rate, and cut have hit all-time highs.
“The report translates this as euphoria being very high, and for the crypto market, this could mean that it is headed for a top.”
Adding to this, Bitcoin balances on exchanges are climbing again. When investors move crypto to exchanges, it often signals intent to sell. The rising activity could signify a profit-taking sigh and a possible market top. Therefore, crypto traders may want to adopt a cautious strategy while awaiting the FOMC meeting in September for further directional clues. Looking ahead, although excitement remains at high levels, the shift in probabilities and rising balances in exchanges is indicating that a short-term top might be nearing for the crypto market. Investors are advised to keep an eye on developments and prepare for some expected volatility in the coming weeks.
