Cryptocurrencies face potential turmoil in September, following a sudden drop in Bitcoin's value, instigating concerns about a wider crash involving Ethereum, XRP, and other digital assets.
In the world of cryptocurrencies, the focus is squarely on the Federal Reserve's upcoming interest rate decision in September. According to Matt Mena, a crypto research strategist at 21Shares, looser financial conditions could be a significant tailwind for bitcoin, keeping the $150,000 and even $200,000 price points in play this cycle.
The market currently prices the likelihood of a 25 basis point cut by the Federal Reserve at almost 90%, according to the CME's FedWatch tool. The decision on whether the Fed will cut interest rates in September and by how much will be influenced by the inflation data and jobs data. The core PCE price index, a measure of inflation in the U.S. economy, is expected to stay level at 0.3% month-on-month for July. The early September jobs report will be followed by the consumer price index (CPI), likely to be the final data point used by the Federal Reserve during its September 17 meeting.
However, the crypto market has been swinging wildly in recent weeks due to traders positioning for the Federal Reserve to resume interest rate cuts next month. Bitcoin, the leading cryptocurrency, has dropped 12% from its August peak to its lowest level since early July. The bitcoin price plummeted towards $109,000 per bitcoin after hitting an all-time high of over $124,000 per bitcoin this month. The drop in bitcoin price led to a loss of almost $200 billion in the crypto market, affecting ethereum, XRP, and other major cryptocurrencies.
Fears of a wider bitcoin price and crypto market crash are growing among traders. Thomas Chen, the chief executive of institutional bitcoin software developer Function, believes that a delayed or 'no-cut' scenario from the Fed could trigger a large correction across major crypto assets and altcoins. Chen warns that a cascade of forced selling could occur due to the crypto market being built on a "house of cards of a single narrative of a soft landing."
On the other hand, bitcoin price bulls are predicting bitcoin could rocket past its all-time high of $124,000 per bitcoin if the Fed cuts interest rates in September. George Harrap, the research strategist at 21Shares who expressed his view on the possible continuation of the Bitcoin price rally, shares this optimistic outlook.
As the crypto market waits for the Fed's decision, the bitcoin price has found a floor after plunging towards $107,000 per bitcoin. The price of ethereum, XRP, and the wider crypto market have also rebounded slightly back towards $4 trillion. Russ Mould, investment director at AJ Bell, states that inflation data will take centre stage today. The timing of the Fed's decision is what markets are squarely focused on.
In the midst of these volatile market conditions, it's clear that the crypto market remains closely tied to the decisions of central banks, particularly the Federal Reserve. As we move towards September, the anticipation and potential impact of the Fed's decision continue to shape the crypto market's trajectory.
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