Bitcoin and the crypto market braced as economist warns on the Fed cuts

Bitcoin and the broader crypto market are on edge as a top economist, whom Donald Trump nominated to the Federal Reserve in 2019, downplayed the impact of the upcoming interest rate cut. 

Bitcoin (BTC) price was trading at $112,645 at press time, up by 3.7% from its lowest level this month. Other top altcoins like Ethereum (ETH) and Solana were largely flat, while the market capitalization of all tokens remained at $3.9 trillion. 

Crypto market on edge as Stephen Moore downplays impact of Fed cuts

One of the main catalysts driving the crypto market this week is a recent statement by Jerome Powell at the Jackson Hole Symposium in which he signaled that the bank may consider cutting interest rates in the upcoming meeting in September, citing the weak labor market.

However, in a statement, Stephen Moore, a senior economist at the Heritage Foundation, said that the cut will not do much for the economy, and potentially for assets like stocks and cryptocurrencies.

He argues that the Federal Reserve interest rate has largely become irrelevant now that banks don’t use it anymore.

Instead, he argued that the bank should consider cutting the Interest on Reserve or IoR, which stands at 4.4%.

IoR is the interest that banks earn for storing money at the Federal Reserve, a figure that currently stands at $3.5 trillion. Banks earned about $186 billion from the IoR last year  

The other potential risk is that the Federal Reserve may opt for a hawkish interest rate cut in September. This is where it cuts rates but delivers a restrictive outlook on monetary policy.

The case for a hawkish cut is that the economy is sending mixed signals, with the GDP data released on Thursday being better than expected and inflation remaining significantly higher than the Fed’s target of 2.0%.

ETF approvals to be the main catalyst 

The main catalyst for the crypto market will be the upcoming ETF approvals by the Securities and Exchange Commission.

The agency has delayed most of the ETF approvals, including on popular tokens like Solana (SOL) and Ripple (XRP), to October.

After several delays, the Paul Atkins-led agency will likely move ahead and accept or reject them. Polymarket odds are that the agency will ultimately approve top ETFs, including Dogecoin, Solana, Hedera Hashgraph, and XRP.

Current data indicate a demand for altcoin ETFs, as evidenced by the surging inflows into the Ethereum ETF. Other futures-based altcoin funds like XXRP, SSK, and UXRP have also had substantial inflows a few months after their launch.