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As the Federal Reserve considers its first rate cut since 2020, crypto markets stand at a crossroads. Joe McCann of Asymmetric believes a 50 basis point cut could benefit cryptocurrencies, whereas a smaller reduction might negatively affect both equities and digital assets.
Crypto Market Impact Hinges on Fed Decision
A crypto hedge fund manager has stated that contrary to popular belief, a significant reduction in interest rates by the Federal Reserve would actually be good for risk assets and the cryptocurrency markets.
Cointelegraph spoke with Joe McCann, founder and CEO of Asymmetric, who described the impending interest rate decrease by the US central bank as a "coin flip" between 25 and 50 basis points. Rates are currently at a 24-year high of 5.5% and will be cut for the first time since March 2020 on Wednesday, Sept. 18.
According to McCann, the Fed futures markets have a perfect track record of success when an outcome is priced at 70% likelihood.
CME Fed Watch Shows Higher Odds for 25 Bps Cut
As things stand, the odds of a 25 basis point rate decrease are 35% higher than those of a bigger 50 basis point cut, according to the CME Fed Watch tool.
He elaborated by saying that market expectations have been swayed toward a 50 basis point drop due to recent media coverage and remarks from previous Fed governors.
Equities and Crypto to Drop with 25 Bps Cut
However, according to McCann, cryptocurrency markets might suffer from a 25 basis point reduction.
“I think if the Fed cuts 25 basis points, the equities markets will take a serious hit. Crypto will likely fall along with that. And the reason is, you’ve got stocks at all-time highs assuming a 50 basis point cut.”
However, he did mention that risk assets, such as cryptocurrency, would probably benefit from a 50 basis point drop by the Fed.
50 Bps Cut Could Trigger Crypto Breakout
While the markets may have already factored in the rate cut, Saad Ahmed, head of Asia Pacific at crypto exchange Gemini, told Cointelegraph that it might still impact a breakout.
“I think a lot of these things are probably built into the price already because people are anticipating it. However, sometimes it’s good to have a catalyst for the price to break out of a range.”
In the event of a more substantial 50 bps reduction, "Ultimately, you know, risk-on is back on the table," he emphasized.
Fed's Rate Cuts Were Previously Linked to Crises
McCann challenged the conventional wisdom that a 50 basis point reduction in interest rates would be negative, pointing out that the only other occasions the Federal Reserve lowered interest rates were in response to catastrophes, such as the financial crisis of 2008, the mid-1990s dot-com bubble, and the 1987 Black Monday crash.
But now, with GDP growth of 3%, the "booming" economy is distinct and more stable, according to McCann.
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