Crypto Set to Surge if Fed Reduces Rate by 50 Basis Points, Claims Hedge Fund Chief

A significant interest rate reduction by the U.S. Federal Reserve could benefit risk assets and the crypto market, contrary to some bearish predictions, according to the leader of a prominent crypto hedge fund.

Joe McCann, the founder and CEO of Asymmetric, shared that the chances of a 25 or 50 basis point rate cut were evenly split as the Fed considers lowering interest rates from the current 5.5%, a level not seen in over two decades. This would mark the first rate cut since the pandemic’s early stages in March 2020.

McCann pointed out that when market odds suggest a 70% probability in Fed futures, the result is almost always certain. At present, the CME Fed Watch tool indicates a 65% likelihood of a 50 bps reduction, while a smaller 25 bps cut has only a 35% chance.

He mentioned that recent media reports and comments from former Fed officials have swayed expectations towards a more substantial cut.

However, McCann warned that a smaller 25 bps cut could negatively impact the crypto market.

“If the Fed opts for a 25 basis point cut, equity markets could see a significant downturn, pulling crypto down as well. This is due to stocks being at record highs in anticipation of a 50 bps cut,” he explained.

On the flip side, a 50 bps cut could boost risk assets like cryptocurrencies.

Saad Ahmed, head of Asia Pacific at Gemini, a crypto exchange, mentioned that markets might have already factored in the rate cut, but it could still act as a catalyst for a breakout.

“A lot of this is likely already priced in, but sometimes a catalyst is needed to push prices out of their current range,” Ahmed said. A larger cut could reintroduce a “risk-on” environment.

McCann also challenged the assumption that a 50 bps cut would trigger bearish market behavior, reminding that prior Fed cuts were often reactions to crises such as the 2008 financial crash, the 1990s dot-com bubble burst, or the Black Monday event in 1987.

He argued that the present economic situation is quite different, with GDP growth of 3%, suggesting a more stable backdrop.

Additionally, McCann noted that a larger cut could help promote growth through 2025, lower interest payments for the U.S. Treasury, and enable more favorable conditions for homeowners, all while reducing the risk of economic surprises ahead of the next presidential election.

On Sept. 17, the macro blog The Kobeissi Letter observed that uncertainty surrounding this Fed rate decision is at its highest point in the last 15 years.

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