With Rate Cuts and Upcoming Elections, What’s the Best Play in Crypto? - Ep. 709
Sep 24, 2024
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Quinn Thompson, CIO of Lekker Capital, and Travis Kling, Founder of Ikigai Asset Management, dive into the impact of the Fed's recent rate cut on the crypto market. They discuss Bitcoin's underperformance against traditional finance, potential catalysts tied to the 2024 elections, and what it means for various crypto assets. The duo explores the risks of Japan's yen carry trade on crypto and the future of Ethereum amidst regulatory changes. Insightful investment strategies emerge, especially regarding SOL and the significance of Bitcoin ETF approvals.
The recent 50 basis points rate cut by the Fed raises questions about economic health and could influence the crypto markets significantly.
The upcoming 2024 U.S. presidential elections may act as a pivotal moment for the cryptocurrency landscape, depending on candidates' regulatory stances.
Bitcoin's underperformance relative to traditional finance amid macroeconomic shifts highlights the complexities influencing investor sentiment and market dynamics.
Deep dives
Impact of Inflation and Fed Rate Cuts on Crypto
The current macroeconomic environment is characterized by the highest inflation rates in decades, impacting various sectors including cryptocurrencies. Recently, the Federal Reserve implemented a surprising half-percent rate cut, raising questions about economic health and inflation control. The differential recovery rates between high-income and lower-income groups play a significant role in the existing economic landscape, with inflation disproportionally affecting lower-income consumers. As the Fed's actions influence the global economy, assets like Bitcoin are likely to gain prominence as investors seek hedges against currency debasement.
The Two-Speed Economy and its Effect on Markets
The distinction within the economy, where the upper class recovers swiftly while lower and middle-income groups face struggles, has become increasingly pronounced. This two-speed economy raises concerns about the sustainability of the economic recovery and has various implications for small and medium-sized businesses. Investors are observing a divergence in performance between large-cap tech companies and those in the small and medium sectors, which rely heavily on consumer spending. The Fed's monetary policy is likely to impact these segments significantly, with future cuts potentially benefiting the broader economic outlook.
The Role of Global Central Banks in Easing
Despite the ongoing monetary tightening in the U.S., other major central banks are simultaneously easing their policies, introducing a global reflexivity in financial markets. This trend may amplify pressures on inflation protection assets such as commodities and Bitcoin, fostering a conducive environment for their growth. The interconnectedness of global monetary policies suggests that shifts in U.S. rates will encourage prompts from other economies, potentially impacting exchange rates and asset valuations. The current easing cycle may also create speculative opportunities for risk assets if investor sentiment remains optimistic.
Speculative Trends in Cryptocurrency Markets
Throughout 2024, the volatile nature of cryptocurrency markets has led to mixed performance, with significant idiosyncratic shocks affecting Bitcoin prices. Events such as notable unlocks and sales of various assets have created supply pressures, hindering price momentum during certain periods. The strong correlation of crypto prices with momentum-driven trading has further complicated the market dynamics, resulting in inconsistent rally follow-throughs. Emerging risks and uncertainties, especially around macroeconomic indicators like job data, could lead to cautious sentiments among investors.
The Potential Influence of U.S. Elections on Crypto
The upcoming U.S. presidential election is anticipated to significantly influence the cryptocurrency landscape, with candidates having differing stances on innovation and regulation. The possibility of a Trump victory could create a favorable environment for crypto, potentially leading to a series of settlements and a more constructive regulatory outlook. Conversely, Harris's policies might heighten regulatory scrutiny, creating uncertainty that could dampen market enthusiasm. This election's result could very well shape the trajectory of both traditional and digital asset markets in the months following the election.
The Fed just made its first rate cut in years, slashing 50 basis points off interest rates—but what does this mean for the crypto markets? With Bitcoin lagging behind traditional finance, and the looming U.S. elections, uncertainty is growing.
In this episode, Quinn Thompson of Lekker Capital and Travis Kling of Ikigai Asset Management break down the major factors influencing the markets: from Bitcoin’s sluggish summer and the unwinding of the Japan yen carry trade, to why the 2024 elections could be a pivotal moment for crypto. Are these the catalysts we’ve been waiting for, or should we brace for more turbulence ahead?
Also, they cover which assets could benefit the most under a Trump administration, and why they believe SOL could have a negative catalyst in the near future.
Show highlights:
Why the Fed cut rates by 50 basis points and what the chances of a recession are in the U.S.
Why Bitcoin has underperformed the broader TradFi markets this summer
The risks of the unwinding of the Japan carry trade for crypto
How the election results might matter differently for different sectors of the industry
Whether rate cuts affect stablecoin yields in DeFi
How the approval of Bitcoin ETF options will affect the price of BTC
Whether Bitcoin miners will be affected by AI’s need for computing power
Ether’s lagging performance this year and what might be a huge catalyst for ETH
How SOL will manage through the huge unlock in early 2025
What Quinn and Travis think about investing in memecoins
How the rise of Base will impact Coinbase
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