UNCHAINED: With Rate Cuts and Upcoming Elections, What’s the Best Play in Crypto?
Sep 25, 2024
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Quinn Thompson, a macro investor from Lekker Capital, and Travis Kling from Ikigai Asset Management dive into the implications of the Fed's rate cut on crypto markets. They discuss Bitcoin's disappointing summer performance and how the 2024 elections could shift the landscape for cryptocurrencies. The duo explores potential risks in the unwinding of the Japan yen carry trade and why certain assets might fare better under a Trump administration. They also touch on enduring concerns for SOL and how macro trends interlink with crypto valuation.
The recent 50 basis point rate cut by the Fed might stimulate growth in Bitcoin and inflation protection assets, altering market dynamics.
The upcoming 2024 U.S. presidential election could significantly impact crypto regulations and market sentiment, depending on the outcomes favoring pro-crypto candidates.
Stablecoins are anticipated to grow in the DeFi ecosystem, with regulatory improvements enhancing liquidity and linking yields to broader economic conditions.
Deep dives
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Economic Environment and Fed Rate Cuts
The economic landscape is currently influenced by a recent decision from the Federal Reserve to cut interest rates by 50 basis points, a move that surprised many economists. This cut stems from a deteriorating labor market and decreasing inflation, which are significant concerns for the Fed. The prevailing discourse is divided on whether the economy is in a recession, with a two-speed economy emerging where wealth and recovery are unevenly distributed. These monetary policy changes are expected to stimulate growth and could enhance the appeal of Bitcoin and other inflation protection assets.
Impact of Political Changes on Crypto
The upcoming U.S. presidential election is projected to have substantial implications for the cryptocurrency market, particularly regarding regulatory stances. Expressions of support from key political figures for crypto innovation could positively influence market sentiment if the election results favor pro-crypto candidates. In contrast, a win for less supportive candidates may prompt a short-term negative reaction from the market, impacting asset values like Bitcoin and Ethereum. Investors are advised to consider the political landscape as a critical factor in their strategy for cryptocurrencies.
Market Dynamics of Stablecoins and DeFi
The growth trajectory of stablecoins is viewed as crucial for the expansion of the DeFi ecosystem, given their potential to enhance liquidity and trading volume. Regulatory improvements allowing banks to issue and custody stablecoins are anticipated to drive this growth further. As the interest rate environment evolves, there may be significant reflexive changes that impact yields on stablecoins, effectively linking DeFi yields to broader economic conditions. Overall, there is optimism regarding how stablecoins will influence both crypto prices and investment behaviors.
Adoption of New Technologies in Crypto Mining
Bitcoin mining operations are increasingly considering the integration of AI technologies due to the significant value of electricity procurement agreements they hold. The alignment of Bitcoin miners' existing infrastructure with the rising demand for high-performance computing presents a unique opportunity. Companies are pivoting or expanding their operations to include AI capabilities, potentially improving profitability amid challenging market conditions in traditional mining. This trend could lead to a healthier ecosystem for Bitcoin mining, reducing the amount of Bitcoin miners need to sell to remain solvent.
With the Fed cutting rates, what’s the next move for crypto? Two macro investors discuss Bitcoin's sluggish summer, how the 2024 elections could impact crypto markets, and much more.
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 the 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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