The Time Has Come

With Fed Chair Jerome Powell signaling the start of rate cuts, the fog of uncertainty surrounding bitcoin has finally started to clear.

Markets hate uncertainty.

That’s what I’ve been telling people who have asked me why bitcoin has been trading sideways since March.

After all, from a 30,000-foot view, the long-term setup for bitcoin is overwhelmingly positive. We have record ETF inflows, rapid institutional adoption, the after-effects of the bitcoin halving, a warming political and regulatory environment, and runaway federal deficits. It’s hard to imagine better conditions.

And yet the price of bitcoin has been going nowhere. For months. The reason, I think, is that on a short-term basis all you see is uncertainty.

Uncertainty over what, exactly?

1. The U.S. Election: Who will win? And more immediately, what position will the Harris campaign take toward crypto?

2. Mt. Gox and U.S. Government Sales: Billions of dollars in bitcoin was recently released to creditors of the failed exchange Mt. Gox following years of bankruptcy proceedings. When will some of the largest holders cash out?

3. SEC Enforcement Actions: What enforcement actions will be filed as we approach the end of the SEC’s fiscal year in September?

4. Fed Rate Cuts: When will the Fed start cutting rates? And by how much?

Staring down these big near-term questions, it’s easy to imagine investors thinking: I’ll just wait until the dust clears to jump in.

This is why I had such a visceral reaction last week to Federal Reserve Chair Jerome Powell’s press conference in Jackson Hole, Wyoming. One thing I love about Jerome Powell is that he is a clear speaker—by far the best communicator we’ve had at the Fed during my career—and he did not disappoint this time.

In his words: “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

And with that, the era of rates being “higher for longer” came to an end, and we entered the rate-cutting cycle of 2024-2025. CME futures are now pricing in a 100% chance of a rate cut at the September meeting and a 200 basis point (2%) reduction in rates over the next year.

Rate cuts have historically been good for risky assets like bitcoin for a variety of reasons. From an academic perspective, they “lower the discount factor” used to calculate the long-term value of assets, thereby boosting prices. But more than that, they inject some animal spirits into the market.

One of the oldest sayings in investing is “Don’t fight the Fed.” It’s typically used to warn investors against buying stocks and other risky assets when the Fed is raising rates. But the saying works in reverse as well. When rates are coming down, “Don’t fight the Fed” means “don’t sit on the sidelines while risky assets go up.”

My guess—and it’s just that, a hunch honed over years of being in the market—is that Powell’s statement fired the starting gun for a new bull market in bitcoin. I don’t think it will be straight up; there is still too much uncertainty for that. But I do think a new era has begun, and it will build over time as we push through the election and the other clouds of uncertainty hanging over the market.

Powell’s statement offered the first taste of how it will feel to see the veil of uncertainty surrounding bitcoin lifted.

In a word, it feels good.

Risks and Important Information

No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation.

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