Crypto markets may rise if Fed cuts rates by 50 basis points

Joe McCann, chief of crypto hedge fund Asymmetric, believes a significant interest rate cut by the U.S. Federal Reserve could provide a boost to the crypto market.

McCann, founder and CEO of Asymmetric, noted that there is a "coin flip" chance of a 25 or 50 basis point rate cut when the Fed meets on September 18.

The central bank is expected to lower rates from their 24-year high of 5.5% for the first time since March 2020.

McCann pointed out that when the Fed futures market shows a 70% chance of an outcome, it has historically had a 100% success rate.

Currently, the CME Fed Watch tool indicates a 65% probability of a 50 basis point cut, compared to a 35% chance of a 25 basis point reduction.

Recent media reports and comments from former Fed governors have led market expectations to lean toward a 50 basis point cut.

McCann warned that a smaller 25 basis point cut could negatively impact both stock and crypto markets.

"If the Fed cuts 25 basis points, the equities markets will take a serious hit. Crypto will likely fall along with that," he explained, noting that stocks are at all-time highs, assuming a larger cut.

Conversely, if the Fed opts for a 50 basis point reduction, it could positively impact risk assets like cryptocurrencies.

Saad Ahmed, head of Asia Pacific at Gemini, mentioned that while markets may have already priced in the rate cut, a larger reduction could act as a catalyst for price movements.

"If there is a larger 50 bps cut, risk-on is back on the table," Ahmed stated.

McCann also challenged the view that a 50 basis point cut would be bearish, pointing out that previous cuts during economic crises—such as the 2008 financial crisis and the 1987 Black Monday crash—were different from the current economic situation, which he described as "booming" with 3% GDP growth.

The macroeconomics blog, The Kobeissi Letter, highlighted the uncertainty surrounding this Fed decision, stating, “The market has never been so uncertain about a Fed interest rate decision in at least 15 years.”