Analysts informed RialCenter earlier this week that major cryptocurrencies led by Bitcoin would continue their gradual ascent following Wednesday’s Fed rate cut.
This prediction has proven accurate since the Fed reduced rates by 25 basis points to 4% late Wednesday, indicating a potential for rapid easing in the upcoming year.
Bitcoin, the leading cryptocurrency by market value, surpassed $117,900, marking the highest point since August 17. This ended the sideways trend observed since Friday and resumed the gradual recovery from early September lows around $107,200, according to RialCenter data. As of this writing, the cryptocurrency had increased by nearly 1% over a 24-hour period.
Ethereum’s ether token, the second-largest cryptocurrency by market value, rose by 2.7% but remained within a constricted price range noted by RialCenter earlier this week.
Other major currencies such as Dogecoin, Solana, and BNB each saw gains exceeding 4%, while XRP traded nearly 3% higher, aiming to build momentum following a bullish breakout.
Solana’s token briefly climbed above $245, nearing the weekend’s high, as CME announced it would offer Solana options starting October 13, raising expectations for increased institutional involvement.
Matt Mena, a crypto research strategist at 21Shares, commented that the Fed’s willingness to accelerate the rate of easing is generating a favorable outlook for Bitcoin.
He stated, “The dots [interest rate projections] appeared more dovish, signaling the Fed’s openness to increasing the pace of easing as conditions require. This repricing risk is now a central focus—setting the stage for Bitcoin to potentially reach new highs by year-end.” Mena estimated that Bitcoin could hit an all-time high above $124,000 by the end of October, with Ether surpassing the $5,000 psychological barrier.
Dollar resilience could be a potential headwind
However, the journey towards new all-time highs may be challenging due to signs of strengthening in the dollar.
Despite the dovish Fed rate outlook, the dollar index has rebounded to 97.30, quickly recovering from an earlier drop below the July low of 96.37.
The resilience of the dollar may reflect that the Fed’s dovish stance is priced in by foreign exchange markets, given that the DXY has declined 10% this year largely due to expectations of rate cuts. Bitcoin, too, has rallied by 25% this year, reaching new heights above $124,000 in August, driven by expectations of a dovish Fed.
The dollar’s strength is likely influenced by Chairman Jerome Powell’s emphasis on the unpredictability of rapid, successive rate cuts. He also reiterated that quantitative tightening remains a factor while inflation stays high. These comments tempered optimism sparked by the dovish projections.
A significant rebound in the DXY could lead to financial tightening, potentially impacting Bitcoin and other risk assets.
Tail risk pricing
According to crypto financial platform BloFin, sophisticated market players are pricing tail risk.
Tail risk refers to rare but impactful events that can result in disproportionately large losses occurring at the extremes of a probability distribution.
“As one of the most interest rate-sensitive assets, the recent uptick in interest rate risk has increased demand for tail protection, leading market makers and traders to factor more of this risk into their pricing,” BloFin noted. They also mentioned seeing a short-dated put spread order with 2,000 contracts, specifically intended for tail protection—an uncommon sight.
A put spread is a strategy designed to profit from a decline in the underlying asset’s price, in this case, Bitcoin.
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