Bitcoin dumped from $65k to $50k in a day and has lost the critical $53.4k support.
Last time, Bitcoin experienced a similar dump event due to the Mt. Gox FUD and German Govt selling BTC. Now, those are behind us. The crypto market is going through a different kind of threat and we need to analyze this from an investor’s standpoint.
What is going on with the Crypto Market?
- US Recession Fears.
- Possible war in West Asia.
- Stock market crash.
- Oil Prices Fell.
- Downfall in the tech industry.
We will cover all five points and prepare for action. Is this the final dip before the final bullish momentum or the beginning of the bear market?
- US Recession
- Unemployment Rate: The unemployment rate in the US rose to 4.3% in July, marking a significant increase from previous months. This raised concerns about a slowing economy. This has fueled speculation that the Federal Reserve may need to cut interest rates to stimulate growth. But the rate cut is not the problem.
Source: X
What will happen if the Federal Reserve cuts interest rates?
When the Federal Reserve cuts interest rates, it has several effects on the financial markets.
- Stimulated Economic Growth: Lower interest rates reduce the cost of borrowing for businesses and consumers, encouraging spending and investment. This can lead to economic growth as businesses expand and consumers purchase more goods and services.
This has happened post-Covid, and we had the biggest bull run in history. However, we are not expecting a similar kind of bull run. Because the economy was fully reset in the Covid-19 crisis. There was a huge FOMO among retail investors. 2024 is not the same.
- Increased Inflation: By stimulating demand, lower interest rates can increase inflationary pressures. This is because more spending can lead to higher prices if supply doesn’t keep pace with demand. So, inflation is inevitable. If money is going to be cheaper later, institutions can withdraw investments and be liquid now, and reinvest when the money is cheaper.
This is the problem in its entirety. Institutions and investors are confident about the upcoming inflation, and they are panic selling all investments and assets. This money is flocking to US Debt Bonds which is now offering a higher yield than it did before.
Source: X
Impact on the Stock Market if Feds Cut Rates
- Lower interest rates often lead to higher stock prices.
- This happens because borrowing costs for companies are reduced, leading to higher profits and increased stock valuations.
- Additionally, lower yields on bonds make stocks more attractive to investors.
However, now that the bond yields are high, investors might have a difficult decision to invest in Bonds to survive inflation and invest in stocks or volatile assets to beat inflation.
Most institutions will choose the latter as they did every time in the history of the stock market. Now, if the stock market pumps, crypto will follow rate cuts can improve consumer confidence by signaling that the central bank is taking action to support the economy, which can further boost spending and investment.
However, Not Everything Sounds Exciting
If the Fed rate cut happens, inflation will follow. The unemployment number will increase, and many will go jobless. Also over time, persistently low rates can encourage excessive risk-taking and lead to financial imbalances, requiring careful management by the Federal Reserve to avoid future economic instability.
This would be a disastrous situation and it can happen in 2025 if the rate cut fuels higher inflation than normal, then the whole bullish event would result in a huge crash, similar to the 2008 one. If rates are too low for too long, it could lead to an overheated economy with unsustainable levels of debt and asset bubbles, similar to the Dot Com crash.
Source: X
Stock Market Reaction
So, we have learned what will be when the Feds cut rates. We have a plan. Now, let’s attend the current affairs.
- US Markets: The Dow Jones and S&P 500 fell sharply as recession fears mounted. The uncertainty surrounding the Fed’s response has added to market volatility.
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted levels of risk tolerance of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.
