A continued bullrun in the cryptocurrency market is only a matter of time. What will be the reason for the industry’s growth?
The crypto market is on its way to a rapid recovery, and the main trigger for growth here will be the reduction of the base lending rate in the United States in mid-September. However, the Federal Reserve is now actively preparing for a loosening of monetary policy, which was previously announced by its chairman Jerome Powell. As he noted the day before, the Fed is ready to change market conditions, which in turn will also affect the digital asset industry.
Other positive factors are also noticeable in the cryptocurrency industry. First of all, we are talking about the growth of supply of stablecoins, the volume of which has increased by $40 billion since the beginning of the year.
Stablecoin supply growth in the cryptocurrency industry
This is an important point, because such tokens are the most popular bridge between the world of fiat currencies and digital assets. Thanks to them, investors can transfer a certain amount of money to the issuer of Tether and Circle-like stables and receive the corresponding amount of coins in the blockchain.
In addition, the steblecoins themselves are very actively used by digital asset enthusiasts. The volume of transactions with them in the second quarter of 2024 amounted to 4.44 trillion dollars, which in theory allows this category of assets to surpass the result of Visa payment system for the year.
Stablecoin transaction volume by quarter
Its result for 2023 was $14.8 trillion. Accordingly, this achievement seems more than achievable this year.
When cryptocurrencies will start to grow
The long-awaited cut in the benchmark interest rate will take place at the next Federal Open Market Committee (FOMC) meeting on 18 September. It is expected that the rate will be reduced either by a minimum of 25 basis points or 50.
The corresponding probability is estimated at 67.5 and 32.5 per cent respectively.
The probability of a cut in the benchmark interest rate at the next FOMC meeting on 18 September
The expected rate cut will generate fresh liquidity in the markets, fuelling investor activity and increasing demand for high-risk assets. According to Decrypt’s sources, this category includes not only cryptocurrencies, but also shares of some companies.
Despite the expected positivity, some analysts advise traders to take a balanced approach to conducting transactions due to the upcoming US presidential election in November.
Two candidates are leading in the election race – Donald Trump from Republicans and Kamala Harris from Democrats. And while the former is actively promoting the need for proper regulation of the crypto market, Harris has not yet made a public stance on digital assets.
The volume of election bets on the Polymarket platform is already above $700 million
However, the events of the last few days allow us to visualise the prospects of victory for each of the candidates for the US presidency. Still, Donald Trump this week launched another - already the fourth - collection of NFT-tokens, the buyers of which, among other things, will have a chance to meet the politician in person.
Well, fellow SEC Chairman Gary Gensler's colleagues sent Wells' notice to NFT platform OpenSea, suggesting a lawsuit against the company is imminent. And while we're not talking about Kamala Harris directly here, she has been the current Vice President of the United States for 3.5 years. Accordingly, what's going on in the country - and that includes the situation with the crypto industry - suits her in one way or another. At least Harris hasn't directly defended the coin niche before.
Analysts at QCP Capital emphasised that any fall in stocks and cryptocurrencies is likely to be “short-lived” as the Fed is poised to start a rate cut cycle. And this will directly affect what is happening in the economy and the conditions of activity of its actors. Here’s a quote on the subject.
Increased liquidity will eventually push high-risk assets higher. We are finally on the cusp of a rate cut cycle.
The base interest rate hike cycle began on 17 March 2022. Since then, the benchmark interest rate has been raised eleven times, plus several times the rate has been left at the same level. Accordingly, a change in what is happening will indeed allow the economy to return to a more normalised state.
US Fed Chairman Jerome Powell
Last week, the Chairman of the US Federal Reserve Jerome Powell hinted that the Fed may start cutting rates next month. Moreover, the market is currently pricing in the possibility of three rounds of rate cuts before the end of 2024.
The optimistic view on the foreseeable future of the crypto is shared by analysts of the Nansen platform. The day before, they noted the potential for a continuation of the bullish trend, backed by what they call a “Fed put.”
The term refers to the belief that the Federal Reserve will intervene in the economy and markets to grow – especially as inflation falls and growth stabilises.
Changes in the U.S. benchmark interest rate
That said, Nansen’s representatives warned that overvalued stocks could pose a risk to the crypto market, creating a “downward asymmetry” of high-risk assets.
Simply put, and while the outlook for the crypto market looks positive, there are concerns that the value of some stocks is currently too high. If prices sag, this will traditionally affect other financial markets, including the coin industry.
As a result, experts believe that the improvement in the economy will be enough to trigger an active growth of the coin market. This is explained by the fact that with a lower interest rate, capital loans will become more and more affordable. Well, this, in turn, will give an opportunity to receive money and direct it into investments.
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