Ether Leads Post-Fed Crypto Market Rally as Yen Weakness Sparks Risk-On Frenzy

As a seasoned researcher with over two decades of experience navigating financial markets, I have witnessed countless economic cycles and shifts that have tested my knowledge and patience alike. The recent FOMC decision to cut interest rates by 50 basis points has once again proven to be an intriguing development in our ever-evolving market landscape.

On September 18th, the Federal Open Market Committee (FOMC) announced a key decision that noticeably affected investments considered risky. The Federal Reserve reduced interest rates by 0.5%, establishing a new range for the federal funds rate at between 4.75% and 5%.

This action ignited discussions, as some people think the Federal Reserve could have acted too late in reducing interest rates, suggesting a possible upcoming economic downturn. In the past, the last two instances where the Federal Reserve initiated a 50 basis point rate reduction were preceding the recessions of 2001 and 2008, leading to worries that this latest cut might indicate similar financial difficulties ahead.

In contrast, some argue that the Federal Reserve could be experiencing a “Goldilocks” scenario, where the economy expands steadily. The U.S. GDP for Q2 increased by 3% annually, and headline inflation decreased to 2.5%, the lowest since March 2021. This decline in inflation reduces the necessity for real rates (the difference between the Fed’s target rate and the inflation rate) to remain at current high levels. Additionally, the Atlanta Fed’s GDP model forecasts a Q3 GDP growth of 2.9%, suggesting a stable economic climate.

Impact on key macro assets

After the Federal Open Market Committee (FOMC) made its decision, several important financial assets showed a positive response. The U.S. Dollar Index (DXY) increased by 0.36%, causing the index to surpass the 101 mark once more – a level often considered crucial. Concurrently, the USD/JPY exchange rate, which was around 141 just prior to the Fed’s statement, has since ascended to approximately 143.5. The depreciation of the yen has additionally strengthened risk-taking assets, such as cryptocurrencies.

Oil prices have surged by more than 2% in recent times, possibly due to escalating geopolitical conflicts in the Middle East. Gold, often seen as a secure investment, also experienced growth. Furthermore, shares of Nvidia (NVDA) rose nearly 2%, while the S&P 500 index (SPX) climbed over 1%. This suggests that various risky investments generally responded positively to the Fed’s recent decision.

Crypto ETFs see inflows

The growth in the cryptocurrency market was bolstered by investments into both Ether and Bitcoin Exchange-Traded Funds (ETFs) on September 19 and 20. Specifically, ETFs based on Ether reported inflows of approximately $8.1 million during these days, while Bitcoin ETFs experienced significantly larger inflows totaling around $250.3 million, as per data from Farside.

Performance of market capitalization groups

Looking at the overall market scenario, it’s evident that big, medium, and small-sized cryptocurrencies collectively struggled with underperformance as the FOMC decision drew near.

Following the Federal Open Market Committee (FOMC) decision, it turns out that smaller cryptocurrencies have seen the most significant gains. Initially facing challenges, all categories of cryptocurrencies—large, medium, and small—have reached new peaks compared to Bitcoin since the Fed’s announcement. This suggests a growing willingness to take on risk and increased liquidity throughout financial markets.

In simple terms, companies with a market value exceeding 1 billion dollars are considered large-cap stocks. Mid-cap companies have a market worth between approximately 100 million and 1 billion dollars, while small-cap companies fall within the range of 50 million to 100 million dollars.

For the upcoming FOMC meeting on November 7th, which is only two days after the U.S. presidential election, there’s an equal chance of a 25 or 50 basis point interest rate reduction, as indicated by the current split in predictions among experts.