Bitcoin Tumbles Below $65K Post-FOMC as Middle East Tensions Flare

A decline in stocks occurred following The New York Times’ report that Iranian leaders had directed a response against Israel after the assassination of Hamas leader Ismail Haniyeh in Tehran, potentially escalating tensions and widening conflicts in the region.

Based on my professional background and years of following the Federal Reserve’s actions, I believe that today’s announcement by the Fed leaves room for interpretation. Earlier in my career, I witnessed numerous instances where the market anticipated a rate cut only to be met with no change from the Fed. However, this time, Chairman Powell’s comments suggest a potential shift towards lower interest rates. Despite his assertion that no decisions have been made about a September cut, his use of the phrase “moving closer” indicates that the possibility is becoming more likely. As someone who has weathered various economic cycles, I know better than to take anything for granted in the world of central banking. But given the current state of the economy and the signals we are seeing from the Fed, it seems prudent to prepare for a potential rate cut in September, while keeping a close eye on further developments.

During the day, traditional assets generally increased in value, while digital assets experienced losses. The yield on the 10-year U.S. bond decreased by 10 basis points, and gold rose by 1.5%, slightly below its record highs, to $2,450. WTI crude oil prices jumped 5%. Equity markets also saw gains, with the Nasdaq 100 index increasing by 3% and the S&P 500 ending the day up 2.2%, largely due to a 12% surge in shares of tech giant Nvidia (NVDA).

In my analysis, I attribute the varying returns among different asset classes to the strategic positions taken by traders ahead of the Federal Reserve meeting. This observation comes from a note I sent out via email.

As someone who has navigated through various market cycles and trends over the years, I find myself observing an interesting dynamic between equities, bitcoin, and gold at present. Equities, having experienced a recent downturn, seem to be under-owned, suggesting that investors might be hesitant or cautious following their losses.

In essence, considering together the potential for Federal Reserve interest rate reductions, growing bipartisan discussions about cryptocurrency regulations, and the possibility of another Trump administration, these factors could collectively point to a weakened U.S. dollar, which would be quite beneficial for Bitcoin.

UPDATE (July 31, 2024, 21:30 UTC): Adds Grayscale commentary.