How Will The Crypto Market React To Fed Rate Cut Expectations?

The crypto market may be on the verge of a strong bullish breakout after weak nonfarm payrolls data boosted calls for the Federal Reserve to cut interest rates and as the deadline for ETF approvals nears.

Crypto market to benefit from Fed cuts

The U.S. government published a weak jobs report that confirmed the Federal Reserve will cut interest rates at its upcoming meeting. This report showed that the economy added just 22,000 jobs in August, while the unemployment rate rose to 4.3%.

Therefore, most analysts believe that the Fed will cut interest rates. Polymarket data shows the odds of a 25 basis point cut have risen to 88%. Similarly, the CME FedWatch tool places the odds of a cut to 90%.

Some economists see the Fed cutting by 50 basis points as the jobs report was weaker than expected. In a statement, Mohamed El-Erian said:

“The weak report also reinforces the view that the Fed should have cut rates sooner, particularly last July. It may even prompt some discussions about the possibility of a more aggressive 50 bps cut at the upcoming meeting.”

The report explains why top cryptocurrencies rose, with Bitcoin (BTC) and Ethereum (ETH) hitting $110,865 and $4,285. The total market cap of all coins jumped to $3.9 trillion. 

Historically, cryptocurrencies perform well when the Fed is cutting rates, as they did during the COVID-19 pandemic.

Altcoin ETF approvals

Federal Reserve rate cuts will coincide with the upcoming altcoin ETF deadlines. The SEC has set a deadline for the Grayscale ETF on Oct. 18, 21Shares on Oct. 19, and Bitwise on Oct. 20. Other XRP ETFs with October deadlines are from companies such as WisdomTree, CoinShares, and Franklin Templeton.

The agency also set deadlines for Dogecoin, Litecoin, Solana, and Cardano in October. After several delays, the agency may finally approve most of these ETFs in October, a move that will boost token prices.

Recent data shows strong demand for crypto ETFs. Bitcoin and Ethereum funds have had over $67 billion in inflows since their inception. Similarly, XRP CME futures have recently passed $1 billion contracts, a trend that is accelerating.