As global financial markets experience a significant downturn, attention is increasingly focused on the U.S. Federal Reserve. The Fed, which recently maintained interest rates at 5.25% to 5.5%, is now facing calls for an emergency rate cut following a worse-than-expected U.S. jobs report and various macroeconomic pressures.
U.S. indices fell approximately 2.4% at the latest update, with bitcoin, the largest cryptocurrency by market cap, experiencing a dramatic drop of over 8%. This decline in the cryptocurrency market represents the largest single-day downturn since January 2022.
Jeremy Siegel, professor emeritus of finance at the Wharton School of Business and chief economist at WisdomTree, has advocated for an emergency rate cut of 75 basis points immediately, with an additional 75 basis points cut anticipated in September. Siegel criticized the Fed’s slow approach to adjusting rates, suggesting that a current rate of 3.5% to 4% would be more appropriate. He warned that failing to act swiftly could lead to significant economic troubles.
In contrast, Nigel Green of deVere Group is calling for a more modest 25 basis-point cut to prevent a potential recession. Green emphasized the urgency of Fed action to mitigate “legitimate and far-reaching risks of a hard landing.”
Bitwise Chief Investment Officer Matt Hougan, however, views an emergency cut as unlikely. Hougan expects a 50 basis-point cut in September and a total of 100 basis points or more by year-end. He compared the current situation to the market crash on March 12, 2020, during the COVID-19 pandemic, which ultimately proved to be a significant buying opportunity for assets like bitcoin.
Last Friday, the 12 largest bitcoin exchange-traded funds (ETFs) recorded $237.45 million in outflows, marking the largest single-day outflow since May 1, which saw $563.77 million in outflows. The GMCI 30 index, representing the top 30 cryptocurrencies, fell 9.6% to 102.98, its lowest level since early February.
Brian Rudick, senior strategist at crypto market maker GSR, stated, “The Fed stands ready to implement policy to achieve its dual mandate of price stability and full employment.” Rudick suggested that an emergency rate cut would positively impact risk assets, including bitcoin and other cryptocurrencies, by demonstrating the Fed’s willingness to act and potentially boosting global liquidity, which has historically been favorable for bitcoin’s price.
