Easy Money, Hard Risks: Are Central Banks About to Ignite the Next Market Bubble?

Investors rejoiced at the sight of green across markets as cryptos, stocks, and precious metals rallied higher on Thursday, buoyed by the expected return of easy money as central banks lower interest rates and governments announce stimulus measures. 

“The Federal Reserve’s recent rate cut, aimed at controlling inflation, triggered significant market movements, with Bitcoin (BTC) and equities both responding to the news,” noted analysts at Secure Digital Markets. “Despite this, there are signs that the broader economy may not be as stable as expected, raising concerns about the Fed’s ability to manage inflation while maintaining growth. This economic uncertainty is contributing to heightened market volatility, particularly for assets like Bitcoin, which are highly sensitive to changes in monetary policy.”

“Weekly jobless claims came in lower than expected, signaling a resilient labor market,” they added. “Meanwhile, durable goods orders remained flat in August, defying expectations for a decline, and Q2 GDP held steady at 3%, reinforcing confidence in the underlying strength of the economy despite the Fed's aggressive rate cuts.”

While market watchers closely monitored comments from central bank representatives, the analysts noted that “During his speech at the 2024 U.S. Treasury Market Conference, Fed Chair Jerome Powell provided no new insights on monetary policy. This lack of direction led to a slight market decline following his remarks” before ultimately climbing higher into the close. 

At the closing bell, the S&P, Dow, and Nasdaq were all in the green, up 0.40%, 0.62%, and 0.60%, respectively. 

Data provided by TradingView shows that Bitcoin bulls successfully broke above $65,000 amid the return of risk-on sentiment, hitting a high of $65,887 in the afternoon before retreating back below the stubborn resistance level.  

BTC/USD Chart by TradingView

“Currently, 84% of Bitcoin holders are in profit, reinforcing its position above $64K,” noted Secure Digital Markets analysts. “The momentum suggests that a breakout above the $65K level could be imminent. Historically, Q4 has been a strong performer for Bitcoin, with seasonality trends indicating a positive outlook.”

At the time of writing, Bitcoin trades at $64,837, an increase of 2.39% on the 24-hour chart. 

Bitcoin and the PCE report

“Given the recent rise of #Bitcoin in the weekly time frame and reaching $65,000, as expected, strong support was established at $52,750, and the price did not break below $49,000,” noted TradingView analyst Arman Shaban. “In this scenario, the short-term targets for Bitcoin are at $67,700 and $71,800. Additionally, based on previous analyses, Bitcoin's mid-term target is $80,000.”

 

Looking ahead, Shaban said, “With the upcoming release of the Core PCE Price Index (Personal Consumption Expenditures) report tomorrow, it's important to note that this report directly impacts the Federal Reserve's monetary policy decisions.”

“If the Core PCE data comes in as expected (0.2%) or even lower, the markets will likely feel less pressure for rapid interest rate hikes,” he said. “This would benefit riskier assets like Bitcoin, as investors facing controlled inflation and more lenient monetary policies would turn to digital and high-risk assets.”

Shaban said that if Core PCE aligns with expectations, Bitcoin will likely “continue its upward trend and reach the short-term targets of $67,700 and $71,800. In the medium term, with easing inflation concerns and stable interest rates, Bitcoin could see further strength, potentially reaching the $80,000 level.”

“However, if the Core PCE data exceeds expectations, indicating higher-than-anticipated inflation, the Federal Reserve may decide to implement more aggressive tightening measures, such as increasing interest rates,” he warned. “This could strengthen the dollar and put short-term pressure on risk assets like Bitcoin.”

In such a scenario, “Bitcoin might experience some downward volatility, with potential support levels at $62,000 and $60,000,” Shaban said. “However, given the strong fundamental demand and technical factors for Bitcoin, such fluctuations would likely be temporary, and Bitcoin is expected to eventually resume its upward trajectory.”

“The more likely scenario is that Core PCE will come in at or below expectations, providing breathing room for crypto markets and further boosting Bitcoin,” he concluded. “However, careful risk management and quick reactions to the data are advised during this critical period.”

Altcoin season continues

The rally in the altcoin market continued for the majority of tokens in the top 200, with only a dozen projects in the top 200 recording a loss of more than 1%. 

Daily cryptocurrency market performance. Source: Coin360

The biggest gainer was Shiba Inu (SHIB), which climbed 21%, followed by increases of 17.5% for Ethena (ENA) and 16.6% for Wormhole (W). Newly listed Hamster Combat (HMSTR) was the biggest loser, falling 31.3%, while Bittensor (TAO) lost 6.1%, and Baby Doge Coin (BabyDoge) fell 5.1%

The overall cryptocurrency market cap now stands at $2.29 trillion, and Bitcoin’s dominance rate is 56.3%.

This article originally appeared on Kitco News.