he cryptocurrency market spiked on September 20th, after Bitcoin (BTC) price hit a $64,000 high during the Asia trading session.
The price action came after the U.S. Federal Reserve unexpectedly cut interest rates –a 0.5% overnight jump– which was only the third instance in U.S. history to initiate a rate-cutting cycle with such an increase.
Liquidations and Alerts
One significant note from the Fed choosing to cut interest rates was that the liquidations of short BTC positions initiated over $128 million in short runs across exchange order books, according to data from CoinGlass.
This type of Fed action has caused concern before because whenever a rate-cutting cycle begins with a cut of 0.5%, there have historically been considerable negative position returns in the U.S. stock market over the subsequent two years.
Contradiction in the Fed's Message
Furthermore, analysts have indicated a possible contradiction in the Fed's message because they are still claiming that the economy is strong and there is a 'soft landing' for the economy visible, however, a policy decision to cut rates signifies a crisis type of situation.
This suggested contradiction adds more uncertainty regarding the real state of the U.S. economy and the Fed's capability to manage the economy in its current environment.
The Kobeissi Letter has noted that the past two times the Fed has started a rate-cutting cycle with a 0.5% cut, the U.S. stock market returned a -31% and -26% return over the next two years. With this information in mind, caution to the Fed's recent action is warranted to the global financial markets.
