Sept. 18 2024

CoinDesk 20 Index: 1,826.12  -0.65%
Bitcoin (BTC): $59,919.93  +1.38%
Ether (ETH): $2,307.97  -0.13% 
S&P 500: 5,634.58  +0.03%
Gold: $2,578.13  +0.17%
Nikkei 225: 36,380.17  +0.49% 

Bitcoin fell below $60,000 during the European morning ahead of a widely anticipated first interest-rate cut by the Fed in four years. Lower borrowing costs have historically been a bullish driver of risk assets such as cryptocurrencies. Traders are currently pricing in a 65% chance of a 50 basis-point cut, which could actually have the reverse effect of sending a signal of concern about the economy. The Federal Open Market Committee's announcement is due at 2 p.m. Eastern time. Ahead of the decision, BTC is trading around $59,900, about 1.3% higher in the last 24 hours. The broader digital asset market, as measured by the CoinDesk 20 Index, has dropped by about 0.7%.

After ether's uninspiring performance in 2024, the world's second-largest cryptocurrency could be a contrarian bet into the year-end, according to Bitwise. ETH is little changed this year, while BTC is up 30% and SOL 31%. Nevertheless, Ethereum is the domain for the majority of stablecoins and 60% of all DeFi assets. "Ethereum has the most active developers, the most active users, and a market cap that is 5X bigger than its closest competitor," wrote Matt Hougan, Bitwise's CIO. He compared Ethereum to Microsoft, in that there may be more excitement about newer companies like Slack and Zoom, "but Microsoft is still larger than all of them put together."

BitGo plans to introduce a dollar-backed stablecoin next year, differentiating itself in a crowded market by offering rewards to institutions that provide liquidity to the network. The stablecoin, dubbed USDS, will be backed by short-duration Treasury bills, overnight repos, and cash, like others on the market. It will be what BitGo calls the first open-participation stablecoin. BitGo's offering will differ from its rivals with a rewards-based approach, which incentivizes institutions providing liquidity to the USDS network by distributing a portion of the returns generated from its reserves. “At the end of each month, we generate some return from the cash being held in the underlying fund, and we will pass it back to the participants on a pro-rata basis, based on their custody of the asset," CEO Mike Belshe said in an interview with CoinDesk. 

Arthur Hayes, chief investment officer of Maelstrom, made the bold statement that cryptocurrencies could crash a few days after the first Fed rate cut. 

The impending rate cut would add to the inflation problem and lead to yen strength, causing broad-based risk aversion, Hayes said in an interview with CoinDesk.

"The second reason is that the interest-rate differential between the U.S. and Japan narrows with rate cuts. That could lead to sharp appreciation in the yen and trigger unwinding of the yen carry trades," Hayes said.

Markets got a taste of the destabilizing effect of the yen's strength and the resulting unwinding of carry trades in early August after the Bank of Japan raised its benchmark borrowing cost to 0.25% from zero. Bitcoin fell from roughly $64,000 to $50,000 within a week. Most analysts expect the BOJ to increase rates further in the coming months as the Fed takes the other route. The divergent policy paths mean the yen could rally further, forcing investors to square off long positions in risk assets financed by the JPY-denominated loans.

- James Van Straten