Why is crypto going up today? Fed rate cut bets, ETF inflows & more…

Key Takeaways

Crypto rallied as markets priced an 88% chance of a 25 bps cut and 12% odds of 50 bps next week. Will Thursday’s CPI data shift those bets?

Crypto market rallied higher amid an increasingly positive outlook ahead of next week’s Fed rate decision. 

At the time of writing, the overall crypto market cap rose 1.59% to $3.9 trillion in the past 24 hours, led by Solana’s [SOL] 6% pump. SOL was now flirting with the $220 resistance for the first time since February.  

Cardano [ADA] followed closely with a 5% jump. Ripple [XRP] also saw a remarkable 3.6% upswing and appeared ready to reclaim $3.

Ethereum [ETH] and Bitcoin [BTC] posted a 1.5% gain each. Only Binance coin [BNB] saw a negligible rally amongst the large caps. 

Source: CoinMarketCap

Amongst the mid-cap assets, Hyperliquid [HYPE] was an outlier with a 10% rally, thanks partly to massive bidding wars by issuers for its upcoming stablecoin USDH. 

Chainlink [LINK] also fronted a noteworthy move, about 6% pump. This coincided with Grayscale filing for a spot ETF with the SEC. 

Fed rate cuts may fuel crypto rally, says strategist Tom Lee

Across the board, most crypto assets were green, mainly driven by rate cut expectations, according to Wall Street Strategist and CIO of Fundstrat, Tom Lee. 

He said the rate cut would boost business confidence and spill over to equities and crypto. 

“This is why a Fed cut in Sept will be supportive of equities, particularly small-caps IWM and financials XLF and crypto BTC ETH.”

Interestingly, markets echoed this optimism.

CME FedWatch data showed an 88% chance of a 25 basis point cut at the 17th of September meeting.

Following the recent weak Jobs Report, roughly 12% of interest rate traders were anticipating a jumbo 50 basis point cut. In essence, market sentiment appeared overly optimistic heading into the upcoming Federal Reserve meeting.

Source: CME Fed Watch

Spot ETFs return to inflows

Institutional investors were bullish, too.

According to Soso Value data, Spot BTC ETFs saw $368.25 million daily Net Inflows on the 8th of September.

Notably, this marked a strong rebound following two consecutive days of outflows, signaling renewed investor confidence.

Source: Forex Factory

This left investors eyeing the U.S. Consumer Price Index (CPI) release on the 11th of September.

As the Fed’s preferred inflation gauge, CPI could set the tone for the final policy decision and trigger volatility in crypto markets.