A fall is an opportunity to buy, and the frenzied alt season brought by interest rate cuts is coming in the fourth quarter?

Author: Ben Strack

Compiled by: AididiaoJP, Foresight News

After the dovish speech by Federal Reserve Chairman Jerome Powell, it seems to be a good time to implement a reallocation strategy, especially as macro factors increasingly impact the cryptocurrency market over time.

We still do not know what the Federal Reserve will do at the meeting on September 17. But for many, Powell’s comments carry a dovish tone, opening up the imagination for a rate cut next month.

If we look at the CME Group’s FedWatch tool, based on the 30-day federal funds futures prices, as of Monday noon, many believe that a 25 basis point rate cut is possible, which is a much higher expectation than a month ago:

Although interest rate cuts are usually beneficial for risk assets like Bitcoin, the reality is more nuanced. Bitcoin surged above $117,000 on Friday, then fell back below $111,000. The asset was trading at around $112,600 at 1:30 PM Eastern Time, and has now dropped below $110,000.

YouHodler’s Market Director Ruslan Lienkha believes that the broader trajectory of the cryptocurrency market will still depend on the macro backdrop.

“If inflationary pressures persist, the Federal Reserve may be forced to extend the pause period again, limiting the lasting effects of a single rate cut,” he told me. “Moreover, if a rate cut is seen as an emergency response to a recession, it could weigh down cryptocurrencies and other risk assets.”

Best scenario? Lowering interest rates is part of the Federal Reserve’s successful efforts to achieve a soft landing.

“In this environment, given Bitcoin’s status as the most mature digital asset, it may attract a majority of institutional funds,” Lienkha said. “Some altcoins may perform better because they have higher volatility and lower liquidity, which will amplify the gains of altcoins when capital flows expand beyond Bitcoin.”

When it comes to institutional capital flows, according to data from CoinShares, cryptocurrency investment products saw outflows of more than $1.4 billion last week, the highest weekly outflow total since March. In this data, we see that pessimism regarding the Federal Reserve’s stance at the beginning of the week seems to have driven the outflows, followed by a recovery after Powell’s remarks (mainly in Ethereum products).

Despite a total inflow of $625 million into U.S. ETH ETFs on Thursday and Friday, BTC funds saw an outflow of $217 million over the same period. So far this month, the net inflows for ETH and BTC ETFs are +$2.5 billion and -$1 billion, respectively, “marking a significant shift in investor sentiment towards these two assets,” noted CoinShares’ James Butterfill.

What signals did investors get from Friday?

CK Zheng, co-founder of the cryptocurrency hedge fund ZX Squared Capital, stated that Powell’s shift towards potential interest rate cuts is “significant” for risk asset classes.

His year-end target for Bitcoin is between $125,000 and $150,000. He expects ETH to end the year between $6,000 and $7,000. (It was hovering around $4,600 on Monday afternoon).

Matt Lason, Chief Investment Officer of Globe 3 Capital, stated that any signals of interest rate cuts confirm the hedge fund’s long positions, as more liquidity is crucial for cryptocurrencies. He expects the intensity of the current cryptocurrency bull market to reach its peak in the fourth quarter.

The anticipated interest rate cut has led Globe 3 Capital to shift more of its holdings towards small-cap tokens, “because we are seeing early signs of the long-awaited altcoin season,” Lason added.

What should we expect after the fourth quarter? Dan Tapiero, founder of 50T Funds, expressed his views over the weekend on X, citing research from Morgan Stanley:

Zheng stated that he expects Bitcoin’s dominance to continue to decline after the signing of the “GENIUS Act,” and he estimates that the stablecoin market will grow 10 times in the coming years (from about $270 billion). Coinbase’s latest simulations suggest that the market cap of stablecoins could reach $1.2 trillion by the end of 2028.

We know that the cryptocurrency market changes rapidly, but I think it’s worth pondering these “current situations”. Even if everything changes in a few weeks, days, or hours.