Bitcoin to be 'fastest horse' as interest rates fall: Expert

September is historically a rocky month for bitcoin (BTC-USD) and broader markets, and with interest rate cuts and the US election ahead, the crypto market is in store for some volatility. Fundstrat vice president of digital asset strategy Sean Farrell joins Morning Brief to discuss how investors can best navigate the rest of 2024.

"I think it's important to step back from a high level and understand acute trading risks versus cyclical downturn risks," Farrell argues.

He continues, "If you step back and listen to [Federal Reserve Chair Jerome] Powell at Jackson Hole and think about the Fed's positioning around markets right now and how they've shifted focus away from inflation towards employment, they've kind of taken away the right tail — or should I say, the worst case scenario for crypto — which would be a stagflationary period in which real growth is slowing and the Fed has to step up and be hawkish regardless of that fact because inflation is soaring."

He notes that such a stagflationary period occurred back in 2022, causing liquidity conditions to tighten amid high inflation. However, it appears as if the Federal Reserve is moving away from that scenario as it gears up for its interest rate easing cycle, which will benefit bitcoin down the line: "We are certainly going to meet any kind of recession with more easing, more liquidity, in which case, bitcoin will be the fastest horse out of there."

Heading into the fourth quarter of 2024, Farrell recommends "keeping a little dry powder on hand for any kind of downside volatility... But we do think overall, the risks skew to the upside."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video transcript

So when you are thinking about the path forward for investors, investors in Bitcoin holders here, what should the thinking be and the strategizing be for them throughout the month of September, which is typically rough as you've mentioned.

But also as we head into November and have all of these risks to come that are difficult to price in these unknown unknowns.

What should investors be positioning around?

Yeah.

So I think what's important, I I think it's important to step back from a high level and understand uh you know, acute trading risks versus cyclical downturn risks.

And if you step back and um you know, listen to al at Jackson Hole and think about the fed's positioning around markets right now and now they've shifted focus away from inflation towards uh employment.

Um you know, they've kind of taken away the uh you know, the, the, the right tail, the the or should I say the the worst case scenario for crypto which would be a stagflation period in which the fed, which in which, you know, real growth is slowing and the FED has to, you know, step up and be uh you know, hawkish regardless of that fact because inflation is soaring, that's what we had back in 2022.

That is, that is the cause of a cyclical downturn, liquid liquidity conditions tighten.

Um And we, we possibly had for some, some economic calamity that right now is not on the table uh just due to the posturing from the fed.

And so you've kind of, you, you kind of have the scenario where you have either soft landing and the business cycle uh continues to expand, liquidity continues to expand or you have a recession in which I will concede there, there is significant, you know, acute downside risk.

But, uh, you know, we, we are certainly going to meet any kind of recession with, um, you know, more easing more liquidity in, in which case, you know, Bitcoin will be the the fastest horse out of there.

And so, um, you know, the, the long tail cyclical wrists are kind of off the table.

I think heading into this, you know, the heading into Q four, certainly we recommend keeping a little dry, a little dry powder on hand, uh for any kind of downside volatility.

That's how we're advising clients right now.

But we do think overall the, the, the risk skewed to the upside.