Fed Announces First US Rate Cuts in Four Years, How Did Crypto React?

The Fed announced a 50 bps interest rate cut, causing Bitcoin to surge over US$61,000, benefiting from lower interest rates that shift investors to a risk-on strategy.
As a result, Bitcoin experienced a 1.6% increase in the last 24 hours and 6.7% over the past seven days, according to CoinGecko.
Altcoins are also rallying, some showing double-digit growth following the Fed’s decision.

Ah, the crypto market. One day, your coins are up and the future looks bright. The next day, you have to consider working at McDonald’s because it’s all red. The image below best describes the feeling:

Are we back? Too early to say, but the news is that the Fed announced a 50 bps reduction in interest rates for the first time in four years, causing Bitcoin to surge over US$61K (AU$90.1K) in the last 24 hours.

Related: MicroStrategy to Launch $700M Debt Offering, Aims to Expand Bitcoin Holdings

Lower Interest Rates Boost Liquidity in Crypto Markets

As history shows, lower interest rates favours the crypto market because investors shift to a more risk-on strategy. Liquidity is flowing in, traders seek higher returns in volatile assets like Bitcoin, and market fluctuations could boost spot Bitcoin exchange-traded funds (ETFs) inflows.

Data from CoinGecko shows Bitcoin is now trading at US$61,302 (AU$90,597), a 1.6% increase from yesterday and 6.7% in the last seven days.

Similarly, Altcoins are following suit, as Santiment recently reported that many coins are showing signs of a breakout following the Fed’s decision. Coins like SUI, FTM, SEI, and OM have surged by double digits, with SUI climbing 15.2% in the daily chart.

A lot of the coins currently experiencing an uptick are layer-1s and AI-based crypto projects. For example, Artificial Superintelligence Alliance (FET), which merges Ocean Protocol, Fetch.ai, and SingularityNET, is up nearly 10% from yesterday.

THORChain (RUN), Theta Network, and NEAR Protocol have also surged by double-digits.

📈 Altcoins are showing signs of a breakout following the US Fed’s decision to cut interest rates by 50bps. Fantom (+11%) and Sui (+8%) are notable assets seeing mini surges.
Meanwhile, assets with rising whale transaction numbers include: STG, GMX, BIGTIME, OGN, GALA, & PIXEL. pic.twitter.com/T3L2o2dtJR
— Santiment (@santimentfeed) September 18, 2024

As Expected

The crypto community and general market observers were betting on a potential 50 basis points reduction, while others remained cautious and predicted a 25 bps cut.

Related: Most Traders Still Believe in 4-5 Rate Cuts in 2024, As Crypto Awaits Fed Announcement

As Crypto News Australia reported, Polymarket traders betted on a 99% chance that the Fed would go with at least a 25 bps cut on September 18… Traders placed over US$16M (AU$23.7M) on that market, but it’s safe to say they took the L, while those who targeted a 50+ bps reduction placed over US$6.8M (AU$10.04M).

Finally, two more rate cuts are expected in what’s left of 2024, mainly because the Fed is confident that inflation is nearing 2%.

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