Crypto price
The crypto market surged higher Wednesday, recouping most of the losses from earlier this month.
In the past day, Bitcoin’s
Bitcoin
Ethereum
Cardano
Solana
Dogecoin
BNB
XRP
Despite the recent upswing, traders remain cautious.
One of the concerns is the uncertainty around the upcoming inflation report and the Fed’s next meeting. “Investors remain cautious ahead of US CPI this week,” crypto trading firm QCP Capital said on Telegram.
“They will closely watch inflation numbers for guidance on whether the Fed will cut rates by 50 or 25 bps in September.”
According to the CME FedWatch—a barometer for market expectations of interest rate changes—there’s a 100% chance the Fed will cut interest rates in the next meeting in September.
The question is by how much.
The odds between a quarter-point and a half-point cut are almost evenly split, with the market assigning a 55.5% probability to a 50 basis point cut and a 45.5% probability to a quarter-point cut, according to the CME.
Another major risk traders are factoring in is the unwinding of the yen carry trade. Although the worst of the rout seems to be over, experts say there’s no data to confirm that the market is out of the woods.
“You don’t have any real data to price your carry trades that we know,” said TD Securities’s Richard Kelly in a recent CNBC interview. “I think there is still a lot that can unwind, especially if you look at how undervalued the yen is.”
The risk of the yen carry trade isn’t just the immediate, knee-jerk reaction of the market. According to Kelly, this global asset re-allocation could haunt the markets for years to come.
“That is going to change the valuations for the next one to two years. That’s going to have spillover effects,” he added.
As Reuters reported, the yen carry trade could affect over $4 trillion in assets.
Not “digital gold” yet
The sheer fact that crypto was caught in the broader market rout earlier this month sends a bigger message: crypto is not “digital gold”—at least not yet.
When stocks went into a tailspin on August 5, Bitcoin downright crashed rather than acting as a hedge. Bitcoin’s correlation with gold has also turned negative since July, according to Bloomberg.
Despite crypto’s growing appeal as a legitimate alternative class, experts say it remains one of the first risk asset traders offload when things go wrong.
“If investors panic or are looking to deleverage, crypto is often the first asset on the list,” said eToro analyst Josh Gilbert.
According to Gilbert, it’s too early to expect that Wall Street will accept Bitcoin as an alternative to gold—a legacy asset with a millennium-long track record—and put their money where their mouth is.
“It is unrealistic to think that institutional investors are allocating capital to Bitcoin for the same reason as gold,” he said Gilbert. In his view, these two assets still serve opposite purposes at an institutional level.
Whether Bitcoin and other cryptocurrencies can break out of the speculative asset stigma remains to be seen.
