Why Bitcoin, Ethereum and Phantom are moving higher today

Cryptocurrencies rose today ahead of a major Federal Reserve decision tomorrow on whether or not to cut interest rates by a quarter or half a point.

The price of Bitcoin (BTC 4.03%)the world’s largest cryptocurrency, traded about 5.4% higher, topping $61,000, while the price Ethereum (ETH 3.42%)the world’s second-largest currency, traded 4% higher, trading at just over $2,350. Altcoin price ghost (FTM 10.30%) traded 9.3% higher at about $0.57 as of 2:35 PM ET.

A 50 basis point increase?

Traders increased their bets on the Fed cutting interest rates by half a point tomorrow. CME GroupThe FedWatch tool now assigns a 65% chance of the Fed cutting by half a point and a 35% chance of a quarter point increase. That’s not only higher than yesterday, but a complete reversal from last week’s sentiment, when there was a 66% chance the Fed would cut interest rates by just a quarter point.

A 50 basis point increase should benefit cryptocurrencies, as lower interest rates tend to encourage investment in riskier assets and lead to a weaker dollar, an environment in which Bitcoin and other cryptocurrencies have historically performed well.

In more specific crypto news, former President Donald Trump and his family have released new details about the family’s crypto project. The entity will be launched by a company called World Liberty Financial and is billed as a crypto platform that people can use to borrow, lend or invest in various cryptocurrencies. Trump spoke on social media platform X about the new business and said that it will be open to the public and that there will also be a token called WLFI.

Trump has 90 million followers on X and has the influence to get people interested in various actions or businesses, as he has demonstrated in the past. This could add exposure to the crypto sector today.

Prepare for volatility tomorrow

Tomorrow’s rate cut debate is probably the main event impacting cryptocurrencies today and I think investors should be prepared for volatility as there is a possibility that the Fed will only cut by 25 basis points tomorrow, disappointing them those who hoped for a quicker return to a risky environment.

At this point, it will come down to what the Fed considers the highest priority. The Fed has a dual mandate to control prices and promote maximum employment. The organization has done a pretty good job of controlling prices by slowing inflation to 2.5%, which is close to its 2% target. But now the Fed is starting to grow concerned about the labor market.

Last month, the Sahm rule was triggered, which occurs when the unemployment rate above a three-month moving average rises 0.5 percent from the lowest three-month moving average in the past year. Sahm’s rule has been an accurate predictor of recessions in the past.

“The likely path for the Fed is to cut 50 (bps) this time, really adhering to the principles of data reliance,” Claudia Sahm, economist and creator of the Sahm Rule, told a Reuters forum today. “There was a lot of data on the labor market, all in one direction, and it wasn’t good. This is a Fed that has been well behind the full occupancy side of the dual mandate.”

However, it is hard to say that the US economy is in a recession. This morning, new data showed US retail sales rose 0.1% in August, ahead of expectations for a 0.2% decline. In addition, July retail sales figures were revised higher.

Ultimately, a quarter-point rise tomorrow could send crypto prices lower, but I still like Bitcoin and Ethereum as long-term investments. I’m not interested in altcoins like Fantom right now.