Altcoins Surge Leaving Bitcoin and Ether Behind After Fed Cuts Interest Rate: On September 20, 2024, the cryptocurrency market witnessed a significant shift. Altcoins surged, leaving Bitcoin and Ether behind. This came after the Federal Reserve announced a cut in interest rates. The decision was made on Wednesday, and the market reacted swiftly.
Altcoins, which include all cryptocurrencies except Bitcoin and Ether, saw a notable rise. They outperformed the two leading cryptocurrencies. This isn’t unusual, experts say. Altcoins have higher volatility and liquidity issues. These factors contribute to their dramatic price movements.
Bitcoin’s price rose by 4.4% following the Fed’s announcement. However, altcoins saw a more substantial increase. The Total3 index, which tracks the market cap of the top 125 cryptocurrencies excluding Bitcoin and Ether, rose by 5.68%. This divergence is attributed to the different market dynamics of altcoins.
Bob Wallden, head of trading at investment firm Abra, explained the phenomenon. He compared altcoins to tech stocks that outperform the S&P 500 during periods of economic optimism. Altcoins, he said, are like a leveraged play on the broader crypto market. They tend to perform better when risk assets are in favor.
The Federal Reserve’s decision to cut interest rates by 50 basis points was a significant factor. It pushed Bitcoin’s price above $64,000, a level last seen in late August. The rate cut was intended to stimulate economic activity by making borrowing cheaper. This move was expected to benefit risk assets, including cryptocurrencies.
Bohan Jiang, Head of OTC options trading at Abra, provided further insights. He noted that altcoins are at the fringes of the liquidity spectrum. This means they experience greater volatility. When liquidity is abundant, as it was post-FOMC, altcoins tend to perform well. The recent period of overselling also added momentum to their bounce back.
The relatively low liquidity levels of altcoins cause outsized moves in both directions. Extended short positioning over the past few months contributed to their outperformance. This short-squeeze-like effect pushed altcoin prices higher.
The Fed’s decision had a broader impact on the financial markets. Stocks also rallied, driven by the prospect of cheaper borrowing costs. The correlation between cryptocurrencies and growth stocks was evident. Both asset classes benefited from the Fed’s easing measures.
Bitcoin’s market cap rose, but it was the altcoins that stole the spotlight. The market’s reaction highlighted the different dynamics at play. Altcoins, with their higher beta, responded more aggressively to the Fed’s decision.
The interest rate cut was part of the Fed’s strategy to support the economy. It aimed to counteract slowing growth and rising unemployment. While inflation was not a primary concern, the Fed’s move was seen as a preemptive measure. It was intended to boost economic activity and prevent a potential recession.
The crypto market’s response was a testament to its sensitivity to monetary policy. Investors flocked to higher-risk assets, including altcoins. The market’s reaction underscored the speculative nature of cryptocurrencies. Despite their volatility, they remain attractive to investors seeking high returns.
The Fed’s decision also had implications for future monetary policy. Analysts speculated about further rate cuts. Some predicted additional easing measures by the end of the year. This would likely continue to support risk assets, including cryptocurrencies.