Since the US Federal Reserve’s policy meeting on November 1, financial conditions have significantly improved, as reported by BofA Global Research. This easing is reflected in the rally of the U.S. stock market, a decrease in Treasury yields, a narrowing of corporate credit spreads, and a weakening of the U.S. dollar.
The Fed’s decision to potentially halt and lower interest rates in 2024 is expected to positively impact cryptocurrencies and crypto stocks.
BlackRock fund manager Jeffrey Rosenberg referred to the Fed’s stance as a “green light” for investors , which was echoed by a 1.37% rally in the S&P 500 following the announcement.
He said: “This bullish sentiment can go on for a while, at least until we get a new round of economic data, and until then, the message is clear: the fed is more than willing to see an easing in financial conditions.”
Following the Federal Reserve’s announcement, crypto stocks experienced notable gains. Shares of Coinbase and MicroStrategy saw increases of 7.8% and 5%, respectively. Additionally, Bitcoin miner Marathon Digital’s stock surged by 12.6%.
The positive market momentum following the Federal Reserve’s recent actions is likely to spill over into the broader cryptocurrency market.
Analysts predict the expectation of additional rate cuts in 2024 will be a major driving force for the crypto sector. This comes at a time when institutional interest in pending spot Bitcoin ETFs is peaking, with a decision on these expected in early January.
According to a report from CoinShares , blockchain equities recently saw record-breaking weekly inflows, with an impressive $126 million directed into crypto-related stocks. Additionally, CoinShares’ head of research, James Butterfill, reported that digital asset investment products have enjoyed their eleventh consecutive week of inflows, registering a weekly increase of $43 million.
Investors may see bullish trends in the crypto market similar to those experienced in past rate-cut cycles. However, lower interest rates could lessen the enthusiasm for real-world asset (RWA) tokenization.
With traditional yields declining, the appeal of DeFi (Decentralized Finance) yields, often exceeding 10%, is becoming more attractive.
The current trend is shifting from tokenizing treasuries to focusing on DeFi, due to its potential for higher yields. This shift suggests the crypto market’s ability to adapt and prosper under various economic conditions.
Many market analysts believe that the Bitcoin halving will be a catalyst for growth in the overall cryptocurrency market. As the reward for mining new blocks decreases, the difficulty of mining also decreases. This makes it easier for more people to participate. This could lead to an increased demand for cryptocurrencies and higher prices.