Crypto- and stock investors are bracing for a Fed gift this week

Both stock markets and crypto prices have been edging higher again in the last few days and that has everything to do with the Federal Reserve decision that is coming in just a few days. Analysts and market commentators are once again bullish because of their conviction that Fed chair Jay Powell will cut interest rates for the world’s largest economy this week by at least half a percent. What if that doesn’t happen?

Bitcoin and interest

Bitcoin, the largest digital currency, is still regarded by many as a very risky investment, and ever since the introduction of the Bitcoin ETF (exchange traded fund) at the beginning of this year, it has increasingly moved in tandem with the Nasdaq technology stock exchange (instead of moving in tandem with gold, as it previously did).

The Nasdaq has also had a difficult summer (major chip stocks such as Nvidia and Intel took a hit in July and August) but also seems to be heading upwards again in recent days.

Crypto markets found support during the summer months whenever Bitcoin touched $50,000 and rebounded from there.

And now there is finally something to look forward to. A move higher can be initiated if the Federal Reserve makes the interest rate decision everyone hopes for and markets expect. Watch out for Wednesday, September 18.

Basis points

The job description of the Federal Reserve is quite simple: inflation should hover around 2% while every US citizen has a job. At least that is the goal (which is usually not feasible in practice as there is always a part of the active population that simply does not want to or cannot work).

To achieve the desired result, the Federal Reserve can raise or lower long-term interest rates. A lowering of the interest rate means that people and companies borrow more and the economy will subsequently improve (and there will be more jobs and higher inflation), while an increase in the interest rate will have the opposite result in the long term (fewer jobs and lower inflation). ). 

If Jay Powell follows Christine Lagarde’s ECB example and finally starts cutting interest rates (which are still very high in the United States) and announces further cuts in the coming months, crypto prices could go higher again. If he remains pessimistic and decides to wait a little longer, then markets could go down again.

Bill Dudley’s comments on Friday were especially telling. The former chairman of the New York Fed still has many national contacts in the organization and told Bloomberg that an interest rate cut of 50 basis points could be expected.

In that case, Bitcoin could start its climb to the all-time high of $74,000 again, and if markets become really bullish in the weeks that follow, a move up to $80,000 (or even higher) before the year end is possible.