This speech triggered volatility in the risk assets and the crypto market, with most large-cap cryptocurrencies jumping to new local highs. The price of Ethereum, for instance, briefly ran up to a new all-time high around $4,888 on Friday.
Now, optimism seems to be on the rise about the outcome of the Federal Open Market Committee (FOMC) meeting in September and its potential impact on Bitcoin and other risk assets.
Bianco stated that Powell didn’t exactly specify what he plans to do in the coming month, making his Jackson Hole speech a “Rorschach test.” For context, the Rorschach test is a projective test that employs ambiguous stimuli (typically inkblots) to evoke a person’s internal attitude and biases.
Following Powell’s speech at Jackson Hole and at the end of Friday, the probability of the rate cuts returned at roughly 80%—essentially back to the past week’s narrative. Ultimately, Bianco believes that the situation of the September rate cut never changed and is still dependent on economic data in early September.
Bianco concluded:
To paraphrase Miracle Max in The Princess Bride, a September rate cut is mostly a done deal, but that means it’s also slightly not a done deal.
Lower interest rates typically make risk assets, like cryptocurrencies and equities, more attractive investment options, as the potential yield on fixed-income assets (like treasury bonds) falls. Historically—and as seen on Friday, Bitcoin and the crypto market tend to surge whenever the Fed cuts interest rates.
Hence, a September rate cut by the US Federal Reserve could be generally bullish for Bitcoin and crypto, as investors might rush to these risk assets for higher gains. As of this writing, the entire cryptocurrency market is valued at about $4.07 trillion.
