Bitcoin traders are entering a high-stakes standoff ahead of Federal Reserve Chair Jerome Powell’s highly anticipated speech at the Jackson Hole symposium on Friday.
With conflicting macroeconomic signals and mixed investor sentiment, the directional bias remains unclear for U.S. equities and crypto.
The July CPI report, delivered earlier this month, provided a bullish signal with rate cut hopes, prompting a crypto market rally that pushed Bitcoin to an all-time high in the first two weeks of August.
Subsequent PPI data release, however, has elevated inflation concerns, further aggravating ambiguity over whether the Fed intends to cut rates this year, including next month.
Bitcoin has dropped from 8% from its August 14 all-time high of around $124,128 to $114,170 following a sharp decline over the past seven days, CoinGecko data shows.
Despite Bitcoin being near record highs, “the market is pricing in roughly an 85% chance of a rate cut at the September FOMC meeting,” John Haar, managing director at Swan Bitcoin, told Decrypt.
“Powell is likely to keep his comments relatively neutral in order to keep his options open,” Harr added.
To cut or not to cut, that is Powell’s question
While bond traders remain adamant that a cut will arrive in September, the uncertainty has led to a split in investor expectations and betting in the derivatives market.
The “block bullish and bearish trades were nearly equal,” Adam Chu, Chief researcher at GreeksLive, an options trading platform, told Decypt.
Even with marked trading volume, “short-term implied volatility declined,” Adam said, indicating “institutional investors are not very optimistic that this meeting will bring about significant volatility.”
In any case, the market’s reaction hinges on Powell’s tone.
“It’s clear that many investors are hoping for a rate cut,” James Gernetzke, CFO at Exodus, told Decrypt.
Gernetzke believes that while a rate decision may not become clear until future data is released, investors should still “take note of his tone—this will matter just as much as the specifics.”
“Bitcoin and crypto assets are sensitive to global liquidity conditions and should respond favorably to any further signal the Fed will continue on its dovish path,” Gerry O’Shea, head of global market insights at Hashdex, told Decrypt.
A hawkish tone, however, could spark a renewed sell-off in equities and crypto.
But Gernetzke also offered a nuanced view, noting that this crypto market cycle is “atypical due to regulatory tailwinds” and institutional adoption, which “could soften the blow of a hawkish Powell.”
O’Shea echoed that sentiment, arguing that any negative near-term decision on rates wouldn’t impact the long-term investment case for crypto, supported by institutional adoption and favorable policy from the White House.