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Author: Markus Thielen, Founder and CEO of 10xResearch
Explore additional insights from 10x Research: https://10xresearch.co/latest/
Key Events Bitcoin Traders Need to Watch
Financial markets are facing three key uncertainties: the Federal Reserve's next decision in September, upcoming U.S. inflation data and the outcome of the U.S. Presidential election. With the Fed entering a two-week blackout period, markets will likely remain on edge. We anticipate a 50 basis point rate cut to keep the Fed ahead of economic risks, as a smaller 25 basis point reduction might be insufficient to prevent further damage, given the delayed effects of monetary policy over several quarters.
Exhibit 1: Bitcoin — Trading Within a Narrowing Range
While a 50 basis point cut could unsettle investors, the Fed aims to mitigate economic risks, rather than manage market reactions. Despite the probability of a 50 basis point cut being just 29% — which contrasts with our view and broader market consensus — there’s a growing belief that the Fed has fallen behind, especially after overlooking early signs of labor market weakness this summer.
Market Still Believes A Trump Victory Is More Crypto-Friendly
On the political side, betting odds from Polymarket show that Trump has a 51% chance of winning the election, while Kamala Harris is at 46%. Nate Silver's forecast similarly gives Trump a 63.8% probability of victory, compared to 36% for Harris — his highest prediction for Trump. These figures shifted following the Democratic National Convention, when Harris reiterated her commitment to a high-tax policy. However, Allan Lichtman, known for his "13 Keys" model that has accurately predicted 9 of the last ten presidential elections, currently projects a Harris victory, as she holds 8 of the 13 keys.
The upcoming Harris-Trump debate on Tuesday, September 10, is expected to provide more insight into the race. To date, Harris has limited her direct media exposure, instead relying on favorable coverage — an approach that some interpret as an indication that her campaign is tightly managed by party leaders, rather than driven by her strategy. Despite this, we continue to lean toward a Trump victory, as in 2016, even amid efforts by certain establishment groups working behind the scenes.
Market Closely Watches Out For Inflation Data and September 2024 FOMC Meeting
The U.S. CPI report, due the day after the debate, will carry added significance. Expectations suggest a decline from 2.9% to 2.6%, which could support the Fed's 50 basis point rate cut. With the current Fed interest rate between 5.25% and 5.50%, and monetary policy deemed restrictive above 3.0%, rates may be around 200 basis points too high. This is practically confirmed by the 2-year Treasury yield, which indicates a 160 basis point rate reduction. If the CPI stays at 2.9% or higher, we still anticipate a 50 basis point cut.
Initial market expectations were for six rate cuts in 2024. However, at the March 2024 Federal Open Market Committee (FOMC) meeting, Fed Chair Powell highlighted the need for flexibility, due to ongoing economic uncertainties, especially given mixed inflation data and signs of slowing growth. He also acknowledged the challenge of achieving the Fed's 2% inflation target. Bitcoin's price surge before the release of the higher-than-expected March CPI figure, followed by a sharp drop after the FOMC meeting, underscores the critical importance of the next few days.