Rate hikes have started in style, rocket boosters are lit, bull run is engaged.
Uncle Jerome Powell finally decided to cut rates, and against major bank sentiment did so by a whopping 50 basis points. Many argue that this is a bad sign, that in both previous instances where this occurred a giant recession soon followed (2001 and 2007). However, those rate cuts were in direct response to acute economic crises. This time, the rates are an attempt to address systemic chronic economic issues, and are the beginning of a direct march to 0% interest rates, and likely one of the largest rate cut cycles in recent history.
The reality is that the economy, and crypto markets in particular, have been in a six month holding pattern awaiting an indication of what is to come next. This 50 bps rate drop is the start of a new liquidity cycle, where risk assets are poised to begin their moon missions.
What happens next?
What comes next is a liquidity bonanza where capital is forced to go out the risk curve to keep up. T-bills and low risk bonds start to look significantly less attractive as a means of passive income, and capital that was once earning 5–6% “risk free” gradually trends towards zero yield and soon becomes a guaranteed loss, as it was prior to the pandemic.
My expectations are a brief reprise as investors weight the risks of recession and economic decline against the lowering cost of capital and associated risk-on narrative shift. Soon thereafter, in the coming few weeks, we will see a consistent climb in risk asset prices, followed by a large wave of capital flight towards risk in an attempt to front run future cuts and rising stock and crypto prices.
Q4 is shaping up to be very explosive, particularly for crypto as an asset class. Crypto is still perceived as speculative, and capital will first begin to trickle in, then flow in full force. Bitcoin, in my estimation, will run up into the $85–95K range by year end, and altcoins will follow in a much more explosive fashion.
Buckle up.
Good luck out there, and see you on the next one!
Sovereign Crypto (aka RickyBobby)
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Bull Run Engaged was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.