In recent weeks, the digital asset market has been subjected to a protracted downturn, magnified by overarching macroeconomic pressures, leading to a somber mood among cryptocurrency traders and investors.
This sentiment can be quantitatively gauged through platforms such as Polymarket and the trading of Fed fund futures on the Chicago Mercantile Exchange. These platforms serve as conjectural barometers for the Federal Reserve’s interest rate intentions, offering insight into market sentiment. Initially, on Polymarket, the probability assigned in March for the Fed maintaining interest rates consistently through 2024 was a mere 7%. This outlook has shifted significantly, with the current sentiment reflecting a 38% likelihood that the Fed will forgo rate cuts this year.
This bearish outlook contrasts with the more optimistic 23% chance of no rate cuts this year reported by Bianco Research. The firm’s analysis, leveraging data from the CME’s FedWatch Tool, also highlights a recalibration among CME traders who, despite predicting up to six rate cuts earlier this year, now anticipate merely two.
Market participants have openly expressed their concerns and desires regarding this monetary policy stance. A user on Polymarket, known as JustKen, has notably commented on the platform’s prediction interface after risking $1,000 on a wager that the Fed would cut rates in June—currently facing an 85% loss on that bet.
The general consensus is that higher interest rates dampen the appeal of riskier investments such as cryptocurrencies and stocks, due to the comparative attractiveness of more secure options like cash and U.S. Treasury bills. Following its policy assembly in March, the Federal Reserve projected three quarter-percentage-point rate reductions by the conclusion of this year. Nevertheless, recent indicators of persistent inflation and unexpectedly robust wage growth in the U.S. have tempered confidence among Fed policymakers and financial market observers.
Fed Chair Jerome Powell emphasized a cautious approach, suggesting that the central bank would refrain from adjusting the target range for federal funds until there is substantial assurance that inflation is trending reliably towards the 2% annual target. This comes in the wake of data released last month by the U.S. Bureau of Labor Statistics, indicating a 3.5% increase in consumer prices over the 12 months leading into March—with annual inflation rates holding steady from February, subsequently leading to a downturn in cryptocurrency markets following the announcement.
*Edited by Ryan Ozawa.*
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