Crypto's Unique Risks: Can Institutions Handle the Heat?

Crypto's Unique Nature: A Test for Institutions

Growing concerns surround institutional involvement in crypto, with potential risks emerging from the broader economic landscape.

Recent crypto rallies, fueled by optimism around a potential September Fed rate cut following Jerome Powell's dovish comments at Jackson Hole, may be premature.

According to Santiment, social media mentions of Fed-related keywords, such as "rate cut" and "Powell," have surged to nearly one-year highs. This spike often signals an overheated market sentiment, indicating a potential pullback.

Source: Santiment

Historically, when a single bullish narrative dominates market discussions, a market peak often follows shortly after. The prevailing expectation of looser monetary policy driving crypto prices higher could itself trigger the next market correction.

Rate Cuts: No Instant Crypto Fix

Some analysts caution against expecting an immediate rally following the Fed's next move.

Markus Thielen, Head of Research at 10x Research, suggested in an April report that anticipating a rapid bullish surge may be premature. While acknowledging long-term potential for Bitcoin [BTC], he warned that recessionary fears could exert downward pressure on prices in the short term.

Similarly, Network Economist Timothy Peterson indicated that a delay in Fed rate cuts could negatively affect crypto markets. As of now, the probability of a rate cut is estimated at 75%.

Source: cmegroup.com

Ultimately, investors may need to moderate their expectations. The benefits of any rate cuts may take considerable time to become apparent in the crypto market.