Bitcoin (BTC-USD) and other major cryptocurrencies posted gains on Thursday after the US Federal Open Market Committee (FOMC) released minutes from its July meeting, signalling a potential interest rate cut in September.
Risk assets such as stocks and cryptocurrencies can be sensitive to interest rate changes, as lower rates can make them more attractive by reducing borrowing costs and encouraging investment.
Read more: Crypto live prices
Since the release of the FOMC minutes the overall cryptocurrency market capitalisation increased by almost 2%.
Bitcoin, which had been struggling in the $59,000 (£44,970) to $60,000 range over the past week, saw a jump of over 3%, bringing the digital asset above the $61,000 mark, according to Coingecko data.
Ethereum (ETH-USD) increased by over 2% to $2,630, while altcoin Cardano (ADA-USD) increased by 3%.
Rise in crypto short liquidations
The rally also triggered a rise in liquidations. There were over $21m in bitcoin short liquidations across centralised exchanges on Wednesday, out of a total of almost $37m in liquidated BTC positions, according to Coinglass data.
The broader cryptocurrency market saw over $126m in total liquidations in the same period, with an equal split between long and short liquidations.
Liquidations occur when a trader’s position is automatically closed due to insufficient funds to sustain it, typically resulting from a price surge in a specific direction that depletes their initial margin or collateral.
FOMC minutes release reflects a more dovish Federal Reserve
The FOMC minutes indicated that the US central bank may begin cutting interest rates in September.
“The vast majority of participants observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” it said.
Some traders have criticised the Fed for holding rates for too long, especially after Wednesday’s lower-than-expected revised employment figures from the US Bureau of Labor Statistics.
According to QCP Capital analysts, the downward revision in payroll growth suggests that the US job market is not as strong as previously thought, raising concerns about whether the Fed has been slow to respond to changing economic conditions.
“The question now is whether the US Federal Reserve has been behind the curve, having delayed rate cuts due to a previously stronger-than-expected job market and robust economy,” the analysts said.
Potential Fed rate cuts in September
Fed chair Jerome Powell’s speech at the Jackson Hole Symposium, an annual gathering of central bankers, on Friday is expected to be closely watched for clues on the size of the potential rate cut.
According to the CME FedWatch tool, there is a 67.5% probability of a 25 basis point cut and a 32.5% chance of a 50 basis point cut at next month’s meeting.
Read more: What are bitcoin ETNs?
“Powell’s Friday speech is expected to reinforce this dovish outlook, likely boosting risk assets like stocks and bitcoin as monetary policy provides a favourable backdrop. The Fed’s focus is shifting toward employment in its decision-making, with inflation data becoming less central, especially as CPI trends towards 2.5% over the coming months. Multiple rate cuts will likely be necessary to sustain the current economic expansion,” according to the latest 10x Market Update.
Spot bitcoin ETFs see positive inflows
Expectations of a rate cut in September coincided with US spot bitcoin exchange-traded funds (ETFs) experiencing their fifth consecutive day of positive inflows, bringing in around $39m on Wednesday.
Grayscale’s mini bitcoin trust reported $14m in net inflows, while spot bitcoin funds from Fidelity and Bitwise each saw around $10m in inflows, according to SoSoValue data.
BlackRock’s IBIT, the largest spot Bitcoin ETF by net assets, saw $8.35m in inflows, Franklin Templeton’s EZBC recorded $3.55m, and Invesco’s BTCO experienced inflows of $2.46m.
The total daily trading volume for the 12 Bitcoin ETFs reached $1.42bn on Wednesday. Since their launch, these funds have accumulated a total of $17.56bn in net inflows.
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