Perspectives on Federal Reserve (FED) rate cuts: the impact on Bitcoin ETFs and Ethereum

The recent analyses by Bitfinex indicate a potential slowdown, increasing the forecasts that the FED might reduce interest rates by the end of the year: how will all this impact Bitcoin ETFs and the possible launch of an Ethereum ETF?

Let’s see all the details in this article. 

Bitcoin and Ethereum ETF: what to expect in the coming months based on the FED’s decisions

As anticipated, the recent data on economic activity for the first quarter of the year indicate a deceleration, fueling expectations that the Federal Reserve may reduce interest rates during the year.

In the meantime, the interest of investors in riskier assets such as Bitcoin could fluctuate. This could result in irregular flows towards the ETFs that track them, with possible repercussions on market sentiment.

According to analysts at Bitfinex, Bitcoin could benefit from the halving that occurred in April. Historical data shows that 10-12 weeks after the reduction in rewards for miners, a bull market often begins.

This could mean an opportunity for Bitcoin to strengthen in the coming months. Additionally, the launch of an ETF on Ethereum in the third quarter could further support the positive trend for cryptocurrencies.

As July approaches, an increase in volatility is expected in both traditional markets and criptovalute markets, due to regulatory developments and macroeconomic policies.

According to Jag Kooner, head of derivatives at Bitfinex:

“The real gross domestic product (GDP) increased at an annual rate of 1.4% in the first quarter of 2024, compared to 3.4% in the previous quarter. This slowdown suggests a possible cooling of the economy, which could influence investor sentiment. During economic slowdowns, investors often turn to Bitcoin as a store of value.”

Impact of the FED policies

Kooner emphasizes that, in the face of economic uncertainty, flows towards spot Bitcoin ETFs could experience variations, as investors seek safe-haven assets compared to risk assets. 

Historically, during periods of economic recession or uncertainty, Bitcoin has shown a negative correlation with stocks. That is, demonstrating strength when the stock markets weaken.

As we approach the third quarter, the recovery of the bull market in cryptocurrencies could be strengthened by the entry into operation of ETFs on Ethereum. Kooner adds: 

“The data of the Fed Funds futures suggest that the market expects and still prices in two rate cuts in 2024.” 

The statements of the FED and the possible continuation of a more aggressive policy will be crucial to understand the future dynamics of the markets.

In summary, the coming months could see a significant volatility in the financial markets, influenced by economic and political developments. 

Investors should closely monitor economic data and the decisions of the Federal Reserve, as these will have a significant impact on both traditional markets and cryptocurrency markets.

Morgan Stanley: the projections point to September for FED and BCE

With the debate still open on when the Federal Reserve will start reducing interest rates, the latest forecasts are focusing on September. Recently, Morgan Stanley released a significant statement regarding this timing. 

According to the financial giant, both the United States Federal Reserve (FED) and the European Central Bank (ECB) could lower interest rates in September.

Andrew Sheets, senior strategist at Morgan Stanley, discussed these forecasts in an interview with CNBC. In particular, based on the latest economic data indicating a decrease in inflation. 

Sheets commented that, although the FED still believes that inflation in the United States is too high to justify an immediate rate cut, the ECB is considering its first rate cut in almost five years. 

Both institutions, he observed, are taking a cautious approach. The Morgan Stanley analyst is convinced that high inflation will decrease sufficiently by September, making an interest rate cut necessary. 

“We are more optimistic that both the FED and the ECB will cut interest rates in September.”

Sheets added that it is understandable that these central banks avoid making definitive statements in advance, so as not to appear overly reassuring regarding inflationary risks. 

However, it believes that economic data up to September will show a continued moderation of inflation for both the BCE and the FED.