Analysts have recently suggested that major cryptocurrencies, particularly Bitcoin, would continue their gradual ascent following a rate cut by the Federal Reserve. The anticipated cut, which reduced rates by 25 basis points to 4%, was implemented late Wednesday, coupled with the Fed’s indication of potential rapid easing over the next 12 months. This development appears to align with market behavior, as Bitcoin, the foremost cryptocurrency by market capitalization, reached $117,900, marking its highest price point since August 17. This surge follows a period of sideways trading that persisted since Friday and signifies a restoration of the upward trend that began from a low of approximately $107,200 earlier in September.
As of the latest updates, Bitcoin was experiencing a nearly 1% increase within a 24-hour window. Meanwhile, Ethereum’s ether (ETH), the second-largest cryptocurrency, saw a rise of 2.7%. However, it remains entrenched in a four-week-long narrowing price range, commonly referred to as a contracting triangle.
Other prominent cryptocurrencies showed robust performance as well. Dogecoin (DOGE) experienced a rise of over 4%, as did Solana (SOL) and BNB, while payments-oriented cryptocurrency XRP was up nearly 3%. XRP is particularly noteworthy for striving to gain momentum after a bullish breakout from a descending triangle pattern.
The SOL token from the programmable blockchain Solana exhibited promising activity, momentarily exceeding $245 and approaching weekend highs, buoyed by the Chicago Mercantile Exchange’s announcement to introduce SOL options starting on October 13. This initiative is expected to enhance institutional participation, allowing institutions to better manage their exposure within this asset class. On the same day, CME will also debut XRP options.
Matt Mena, a crypto research strategist at 21Shares, expressed that the Fed’s willingness to consider accelerating the pace of monetary easing has created a favorable setting for Bitcoin. He noted that the dovish indicators from the Fed are paramount, stating, “While today’s 25bps cut provided the spark, it is the path implied by the dots – more than the cut itself – that may set the stage for Bitcoin to challenge new highs into year-end.” Mena forecasted that Bitcoin could reach an all-time high above $124,000 by the end of October, with Ethereum potentially surpassing the significant threshold of $5,000.
However, the road to achieving these all-time highs could encounter obstacles. The dollar has exhibited signs of resilience, which may pose a challenge to cryptocurrencies. Despite dovish projections from the Fed, the dollar index, which measures the dollar’s value against other major currencies, has rebounded to 97.30 after initially dipping below 96.37. This bounce may suggest that the market has already priced in the Fed’s dovish stance, which has been reflected in the dollar’s 10% decline this year due to rate cut expectations.
Chairman Jerome Powell’s remarks indicate that rapid, consecutive rate cuts are not assured, highlighting that the quantitative tightening measures remain active and inflation continues to be a concern. Such comments could dampen the bullish sentiment surrounding cryptocurrencies, as a stronger dollar could lead to financial tightening that might negatively impact Bitcoin and other risk assets.
Additionally, market participants are increasingly pricing in tail risks, which pertain to low-probability yet high-impact occurrences such as market crashes or significant economic turmoil. The heightened interest in tail protection has influenced market makers and traders to incorporate increased interest rate risk into their pricing models. Notably, recent block trade data has revealed a short-dated put spread order involving 2,000 contracts aimed at tail protection, a strategy typically designed to profit from declines in the underlying asset’s price.
