Hopes for a crypto bull market grew as Bitcoin and most altcoins rose to multi-week highs on Monday following calls from Federal Reserve officials for further rate cuts.
summary
- Cryptocurrency markets resumed their rally on Monday amid rising hopes that the government shutdown will end.
- The Fed’s Mary Daly has called for further rate cuts at the next meeting.
- The SOFR interest rate, which had been attracting attention, has fallen to its lowest level in 2022.
Bitcoin (BTC) price jumped to $106,000, and the market cap of all coins tracked by CoinMarketCap rose 1.45% to $3.54 trillion. Some of the biggest gainers in the cryptocurrency market included Starknet, World Liberty Financial, Trump Coin, and XRP.
What’s driving today’s market?
The main reason for the rise in the cryptocurrency market today is the expectation that the US government shutdown will end soon. Those hopes were boosted after eight Democrats voted with Republicans to advance the funding measure. This means the bill is likely to pass in both the House and Senate.
Lifting the government shutdown is important for the crypto market as it will lead to faster approval of altcoin ETFs, leading to increased demand from institutional investors.
Expectations for a bull market in cryptocurrencies also rose after US Federal Reserve officials warned against keeping interest rates high for an extended period of time. Governor Mary Daly said in a statement that banks should avoid the mistake of leaving interest rates high for too long. She said:
“The labor market is softening and wage growth is slowing, so there really isn’t going to be a lot of pressure on labor costs. We don’t want to make the mistake of holding interest rates too long and finding that it’s hurting the economy.”
His comments came as the probability that the US Federal Reserve (Fed) will cut interest rates in December has risen to 73% in the poll market.
Most importantly, the closely watched secured overnight lending rate, commonly known as SOFR, has fallen to its lowest level since 2022. SOFR is the interest rate that banks and other companies use to obtain loans from the Federal Reserve in the overnight market.
Lower SOFR rates combined with proposed $2,000 stimulus check, This means that as liquidity increases, risk assets such as cryptocurrencies and stocks may rebound.
Beware of dead cat bounce
Still, there is a growing risk that the ongoing crypto market recovery is part of the dead cat bounce we have seen so often these days.
A dead cat bounce is a situation where an asset in free fall briefly rebounds and then resumes its downtrend. This is sometimes referred to as a bull trap because it typically attracts inexperienced retail investors.
One warning that this could be a dead cat bounce is that the crypto fear and greed index is still at 29 in the fear zone.
Another is that Bitcoin and most altcoins remain below short- and long-term moving averages and supertrend indicators, a sign that the bears are still in control.
Therefore, if the Fear and Greed Index moves into the Greed Zone and the momentum pushes assets above the short-term and long-term moving averages, a clear crypto bull market is likely to be confirmed.