Fed cuts interest rates for the first time since the birth of Bitcoin

Crescent Crypto
Aug 12 · 7 min read

Macro Action

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Weekly Investor Letter

Aug 8 — Crypto assets increased 11.3% this week ($32 billion), bringing the total market cap up to $305 billion. The Crescent Crypto Market Index (CCMIX) was up 11.9 % while BTC gained 16.4% over the same period.

The crypto market saw strong recovery after its slight drawdown last week. The total value of the crypto market has dropped around 9.2% month-to-date, with Bitcoin dropping only to 1.6%. Bitcoin outperformed small and mid-cap assets as whole this week. As it stands, non-bitcoin digital assets are the primary drivers of the poor monthly returns. Bitcoin performed better than all other CCMIX constituents and indices. Bitcoin is currently trading around $11,720.

Crescent Crypto Market Index (CCMIX)

Bitcoin vs. CCMIX

Aug 2nd — Aug 8th, 2019

Constituent Performance

Aug 2nd — Aug 8th, 2019

Sector Performance

Bitcoin vs. CCALT vs. CCDARK vs. CCSMART

Aug 2nd — Aug 8th, 2019

Summary

  • BTC outperformed all other Large market cap constituents, finding itself up 16.4% on the week.
  • The market saw a decent rebound this week, as returns were heavily driven by bitcoin’s strong price rally. Most other constituents ended the week in the red.
  • BTC was the best performer this week (16.4%), with only four other constituents in the green. This rally brings bitcoin’s monthly returns at -1.6%. Bitcoin has remained fairly immune to the consistent depreciation of other large cap assets.
  • The CCMIX increased 11.9% in value outperforming other indices. The CCDARK index performed second best with an increase of 5.05%, primarily driven by XMR’s strong week.
  • ADA was the worst performer this week down 10.4%. Apart from ETH, Smart-contract platforms, in general, saw poor results as NEO lost around 6.4% week-over-week. ETH, on the other hand, was up 3.9%.
  • Other smart-contract platforms illustrate this trend, with ONT and ATOM losing 6.3% and 4.7%, respectively.
  • BTC dominance increased to 68.8% of the total crypto market cap compared to 62.9% last week.

Notable News

Fed Cuts Interest Rates for the First Time Since the Birth of Bitcoin

What Happened?

The Fed cuts interest rates for the first time since Bitcoin’s inception. The Fed chair Jerome Powell, stated that they are cutting the interest rate by 25 basis points. In a statement, the Fed pointed out that the U.S. economy has seen steady growth, with the unemployment rate remaining low and household spending increasing from earlier in the year. The agency also noted that inflation is running below 2 percent. The Fed still decided to cut rates citing “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.” With this cut, the Fed hopes to sustain the expansion of economic activity, although it also cautions that uncertainties remain about this outlook.

Why Does This Matter?

A giant wave of easier monetary policy is sweeping the world as global central banks pivot away from tightening in favor of rate cuts and additional stimulus measures. Major central banks, most notably the Fed and the ECB, are preparing financial markets for additional stimulus measures if inflationary pressures fail to mount amid tepid economic growth. As independent as they claim they are, Powell & Co. are a bit handcuffed to the policy direction of their peers. This further divergence in rates will likely cause the U.S. dollar to strengthen, putting pressure and constraint on the global economy. It remains to be seen if investors have priced this rate cut in, but nonetheless, Bitcoin’s value proposition shines amongst a backdrop of cutting rates, money printing, and Bitcoin’s 2020 halvening.

Square Q2 Bitcoin Sales Topped a Record $125 million, up over 240% since Last Year

What Happened?

Square Q2 bitcoin sales reached an all-time high of $125 million, up over 240% since last year. Square posted an impressive (record-breaking) $125.1 million in quarterly bitcoin sales for the second quarter of 2019 with almost double the volume from the previous quarter. According to an analysis by The Block, the surge in bitcoin demand across exchanges in Q2 2019 resulted in higher growth rates across U.S. crypto exchanges based on BTC/USD trading pairs. Square’s bitcoin volume Q2 2019 was around 20% of Circle’s Poloneix BTC/USDT volumes, and just around 6% of Gemini and 1% of Coinbase BTC/USD volume. Square CEO Jack Drosey, on the recent earnings call, concluded comments on Square’s Cash App ecosystem with a friendly, “We love you, Bitcoin!” Amrita Ahuja, CFO, later added that bitcoin is a new monetization and engagement lever within Cash App.

Why Does This Matter?

Square’s recent success signals the growth of bitcoin retail demand, as well as, the clear payoffs for square incorporating a bitcoin strategy. With the start of Q1 2019 characterized by institutional inflows, Square’s recent sales record may suggest the possible shift back to a retail-driven price-rally. It will be interesting to monitor the continued traffic of retail investors via the CashApp and to see whether U.S crypto exchange volume continue to diverge. Possibly the most bullish signal for Bitcoin in Square’s bitcoin strategy is the pro bitcoin remarks by Jack Dorsey. Jack has reconfirmed his appreciation of bitcoin, boding well for the leading cryptocurrency.

The Federal Reserve announces plans for a real-time payments system that will be available to all banks

What Happened?

The Federal Reserve Bank announced a new service called FedNow, that will allow all banks in the United States to offer 24/7 real-time payment services every day of the week. FedNow is expected to be available by 2023 or 2024 and will initially support transfers up to $25,000. The Federal Reserve Board explained that “there is a broad consensus within the U.S. payment community and among other stakeholders” that real-time payment services can have a “significant and positive impact on individuals and businesses throughout the country and on the broader U.S. economy.” Real-time payments mean people with tight budgets can rely less on costly check-cashing services and high-interest loans and will incur less overdraft and late fees. Small businesses can avoid short-term loans with high-interest rates.

Why Does This Matter?

Per TechCrunch, FedNow plans to make managing budgets easier for many people and small businesses. At the same time, the Fed’s plans are in competition with big banks as a federal real-time payments system would compete with the one being developed by the Clearing House, which is owned by some of the world’s largest banks, including Capital One, Citibank, Wells Fargo, Bank of America, JP Morgan Chase and Deutsche Bank. Apps such as Venmo allow users to transfer money instantly, but their services function as “closed loops” because both parties need to be on the same platform in order to transfer money and can only be linked to certain banks. FedNow, on the other hand, will be a universal inter-bank infrastructure allowing real-time payments. Traditional payment rails create “not only creates frustrating delays but can result in a build-up of financial obligations between banks which, as faster payment usage grows, could present risks to the financial system, especially in times of stress,” the Federal Reserve Board said. The fed proposing to change the payment-rail system is relevant to the crypto industry and is a “sign of the times.” It remains to be seen if FedNow will gain significant traction, nonetheless, this move illustrates the importance of interoperability that crypto attempts to bring. 2024 is long way away.

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