Fed’s Rate Cut Propels Cryptocurrencies, Stocks Falter

• Fed’s rate cut triggers crypto surge, but U.S. stocks lag behind with underperformance.
• Bitcoin, Ethereum soar after Federal Reserve’s unexpected 50 basis points rate cut.
• Investors expect further rate cuts as U.S. elections approach, driving market volatility.

The Federal Reserve‘s recent rate cut boosted the cryptocurrency market, while U.S. stocks lagged behind. On September 20, 2024, the Fed slashed interest rates by 50 basis points. 

This move, while exceeding the forecasts of many macro analysts, aligned with futures market predictions. The decision led to a sharp rise in digital currencies, but equities needed to match this momentum, underperforming in comparison. 

The rate cut was well-received across the cryptocurrency landscape. As the central bank introduced this policy shift, cryptocurrencies surged, reflecting optimism in the market. 

Major coins like Bitcoin and Ethereum experienced significant gains following the announcement, benefitting from the broader monetary easing. In contrast, U.S. stocks struggled to find traction, with underperformance notable across key indices. 

Investors are now eyeing future rate decisions, as the Federal Reserve has two more meetings scheduled in 2024. The next gatherings on November 8 and December 19 could bring additional rate cuts, with market sentiment expecting a cumulative reduction of 100 basis points before the end of the year. 

These cuts come at a crucial time, overlapping with the upcoming U.S. elections, adding further volatility to the financial landscape.

Alongside the rate cut, the options market experienced a notable decrease in implied volatility. Across major maturities, implied volatility levels saw significant drops, especially in ultra-short-term maturities, which fell by more than 25%. 

Large investors’ short-term short-selling expectations also weakened, contributing to this decline. This shift in the options market indicates that major investors anticipate less downside risk in the near term, even as market volatility is expected to remain high.