Will Bitcoin ETFs Soar on Sooner-Than-Expected Fed Rate Cut?

Bitcoin BTC/USD surpassed the $71,000 mark, indicating increased market confidence in potential Federal Reserve interest rate cuts. This streak of daily increases is the longest in three months, just 4% below its all-time high of $73,798 set in mid-March, per Bloomberg.

Investors should also note that the short-term correlation between Bitcoin and the Nasdaq 100 Index is at its highest since early 2023, indicating that further gains in the tech-heavy index may coincide with a rise in the crypto market leader.

ETFs like Grayscale Bitcoin Trust GBTC, iShares Bitcoin Trust IBIT, Fidelity Wise Origin Bitcoin Fund FBTC, ProShares Bitcoin Strategy ETF BITO, ARK 21Shares Bitcoin ETF ARKB and Bitwise Bitcoin ETF Trust BITB should now be in focus.

Will Fed Cut Rates Soon?

Traders are increasingly pricing in the likelihood of a Fed rate cut as early as September following data indicating a slowdown in U.S. inflation and a softer job market. Inflation, which resumed its climb in the first quarter of 2024, is finally showing signs of cooling. Also, the manufacturing sector slowed further in May. Job openings also dropped to new 3-year low. 

There is now 55.3% probability of a 25-bp Fed rate cut in September, as per the CME Fedwatch Tool, up from 51.3% recorded on Jun 3, 2024. This has led to a decrease in Treasury yields lately, easing financial conditions and benefiting speculative assets like cryptocurrencies. Notably, benchmark US treasury yield dropped to 4.33% on Jun 4 from 4.61% recorded on May 29, 2024.

Tom Couture, Vice President of Digital Asset Strategy at Fundstrat Global Advisors, noted that crypto assets are responding positively to the decline in rates. Despite recent struggles to maintain levels above $70,000, optimism persists due to inflows into U.S. ETFs and progress in Washington towards crypto regulatory frameworks.

Bullish Prospect Ahead for Bitcoin?

Michael Novogratz, CEO of Galaxy Digital, expressed optimism about a more favorable U.S. political environment for digital assets, predicting that Bitcoin could reach a record $100,000 or higher by the end of the year, as quoted on Bloomberg.

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