Rate Reductions and ETF Approvals are Driving the Market
The cryptocurrency markets are at a tipping second, prompted by the Federal Reserve's latest interest rate decrease of 25 basis points and the continuing actions of the regulators regarding crypto ETFs and other regulatory guidance. Those combined shifts, the ongoing legislative focus on the cryptocurrency space provides a bullish outlook for digital assets that could have widespread implications for investors, traders and the cryptocurrency space. This article will present some insights on trends, their implications for the market, and some ideas for practitioners.
Important Developments in the Market
The Federal Reserve's interest-rate cut of 0.25% is the commencement of a new cutting cycle to be followed by two additional cuts of 25 basis points expected before the end of the year. The shift in the framework of monetary policy to a more accommodative policy has lowered the cost of borrowing for risk assets, which includes cryptocurrencies. These assets, specifically Bitcoin, Ethereum, Solana, and XRP, experienced a positive market response demonstrated by price increases. To illustrate, from its current upward price channel, Bitcoin is likely still in an upward price trend with a price target potential of $135,000, and Solana's price curve is suggestive of a return to its all-time-high price of approximately $300 in the near term.
At the same time, the U.S. The Securities and Exchange Commission (SEC) established broad listing standards for crypto spot ETFs under the Securities Act of 1933, which will facilitate the approval of exchange traded funds based on cryptocurrencies, including Bitcoin, Ethereum, Solana, XRP, and Cardano. Together with the approval of what appears to be a pending decision for a fund like the Grayscale Digital Large Cap Fund, those two factors could lead to expanded institutional investment. For example, a $4 billion equity capital raise at Forward Industries for their Solana position could be an indication of increasing institutional confidence in alt coins.
The Importance of Interest Rates
There are many potential implications for company a business or investor. With lower interest rates, the opportunity cost of holding a non-yielding asset, such as a cryptocurrency, will be reduced and will lead to allocation of capital to a riskier market. Overall, a low rate environment is beneficial for crypto assets, which flourish on liquidity, and sentiment. Businesses, particularly in the fintech or blockchain spaces, will now be allowed to expand, reinvest in innovation, or create crypto products at a lesser cost of capital.
The approval of crypto exchange-traded funds (ETFs) by the SEC is an important event for improving market access and liquidity. The SEC is streamlining the ability to launch a crypto ETF and facilitating the acceptance of digital assets into the investment community. Institutions can gain exposure to crypto returns without the hassle of owning crypto directly. This will likely bring money into crypto, but primarily in high-quality names like Bitcoin, Ethereum, Solana, etc., which are even starting to show bullish technicals by retesting the 20-day exponential moving average (EMA) and showing recent breakouts. Increased volume, increased users, and increased income are all great news for crypto ecosystem companies like exchanges and DeFi companies.
The growth of decentralized finance (DeFi) and perpetual decentralized exchanges (DEXs) such as Hyperliquid and Aster are further indicators of the growth of the sophistication of the market by deploying buybacks for their tokens and incentives for community. Their share repurchase plans and incentivization are creating price movements and added market share. In particular, the strength of community engagement and their tokenomics has shown positive price movement across particular DeFi protocols, showcasing the impact of whaling on the not only DeFi protocols, but the DeFi landscape as a whole.
Possibilities and Considerations
The current climate in the marketplace opens up multiple situational possibilities:
1. Leverage - ETF’s:
Investors and institutions should be thinking about utilizing crypto ETF’s to obtain potential regulated exposure to digital assets. Solana and Cardano ETFs will be available shortly (October 2023) and will offer diversified exposure well earned yield.
2. Leverage - DeFi/DEX Opportunity of Growth:
Businesses can also leverage or build on platforms Hyperliquid or Aster. Additionally, token buybacks similar to the structure of the Jupiter project will add value and create sustainable tokenomics models.
3. Watch Technical Setups:
Traders should focus on trading assets that have valid technical setups. For example, the rising wedge in Solana or a price target of $3.40 for XRP. We would also recommend trading strategies like a retest of the 20-day exponential moving average for your long position as these can provide a good trade entry.
4. Stay Adaptive to Volatility:
Even in a bullish market safety measures, like moving stop-loss orders, DBA trades at risk profiles by leverage the volatility as they experience pullbacks in the crypto market. Even with long positions open in Solana with $100,000 unrealized profit, 98% of that, we're happy to "maintain flexibility."
The present state of the market demonstrates the importance of timing and community. Hyperliquid leveraged airdrops and buybacks to build a loyal user base. Simultaneously, some projects, such as Aptos and Polygon, which lost momentum, highlight the need for continuous utility and innovation from their liquidity tokens.
What Comes Next?
The combination of monetary easing and regulatory clarity should enable a strong Q4 in the cryptocurrency markets. Industry practitioners should position themselves for further institutional involvement and potential volatility in the market. To ensure you are positioned for the bull cycle, you could also begin to think about ways to either benefit from ETF approvals, capture the activity of DEFI, or trade on an exchange like LBank.
You are welcome to use LBank to see if you can find any trading opportunities or to participate in any new decentralized exchanges. As the market continues to develop in maturity, this industry should welcome this Bull-cycle and become as comfortable as possible while participating, when appropriate. If you can pivot along with regulators and developing tokenomics, then both companies and investors are best positioned to thrive in Digital Finance.
This article is contributed by an external writer: Danny Joe.
Disclaimer: The content created by LBank Creators represents their personal perspectives. LBank does not endorse any content on this page. Readers should do their own research before taking any actions related to the company and carry full responsibility for their decisions, nor can this article be considered as investment advice.