Bitcoin stays above $60,000 after Fed's jumbo rate cut. Here's what to watch next.

By Frances Yue

Welcome back to Distributed Ledger. This is Frances Yue, crypto reporter at MarketWatch.

The Federal Reserve on Wednesday reduced its key policy rate by half a percentage point, its first cut since March 2020 and the biggest cut in 16 years.

Bitcoin edged up 0.2% Wednesday afternoon to around $60,195, according to Dow Jones Market Data.

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What to watch

"The Fed's move towards less restrictive policy should be a positive catalyst for bitcoin as it will invite a lower U.S. dollar and renewed upside pressure on inflation," Joel Kruger, market strategist at LMAX Group, wrote in emailed comments to MarketWatch.

The ICE U.S. Dollar Index DXY, a measure of the greenback against a basket of six major rivals, was mostly flat Wednesday afternoon after falling to a session low of 100.37, its weakest since July 2023, according to FactSet data.

Because the market was already partially pricing in a 50-basis-point cut, investors' focus is quickly moving to the magnitude and extent of rate cuts in this cycle, according to David Lawant, head of research at FalconX. One of the most important factors to watch will be the trajectory of economic activity, Lawant said.

From a technical perspective, bitcoin needs to establish a clear break above $65,000 "to suggest we are seeing the start to a bigger move that opens a push to fresh record highs," Kruger said. The crypto has been trading in the range of $50,000 to $72,000 for the past several months, after reaching an all-time high of $73,798 in March.

A DeFi comeback?

Decentralized finance may not make a comeback until 2025, said Hong Fang, the president of crypto exchange OKX.

The total value locked in decentralized-finance applications stands at around $78.8 billion on Wednesday, down 54% from its peak of over $170 billion in November 2021, according to data from DefiLlama.

DeFi has been stalling as bitcoin and ether exchange-traded funds have taken center stage this year, Fang said. Most new capital flowing into the crypto space has gone into the ETFs since bitcoin ETFs were launched in January and ether ETFs started trading in July.

Meanwhile, decentralized-finance applications need to be more user-friendly and develop more use cases to attract new users, Fang noted. For now, most such applications are hard to navigate for everyday users.

"In order to actually go beyond the hurdle and help a broader audience to get plugged into a decentralized financial system, you have to make the on-ramp easier for the broader audience," said Fang.

Regulation remains another hurdle, as many industry participants believe the current rules around DeFi are unclear, which deters institutional investors, Fang said. Investors are closely watching the U.S. presidential election in November, with many believing that a victory by Republican nominee Donald Trump would lead to a much friendlier regulatory environment for digital assets.

Read: Bitcoin may rally regardless of whether Trump or Harris wins the election

Crypto in a snap

Bitcoin (BTCUSD) has gained 3% over the past seven days, to slightly above $60,000 at the time of writing Wednesday. Ether (ETHUSD) has lost 1% over the past seven days, to around $2,322, according to Dow Jones Market Data.

Must-reads

Trump crypto project: Why there's 'enormous potential downside' for the campaign (MarketWatch)Ex-Coinbase Employees Launch Stablecoin Focused Crypto Exchange (Bloomberg)Struggling bitcoin miners may be revived by Fed rate decision, regardless of cut size (MarketWatch)eToro reaches $1.5 million settlement with SEC. Other crypto brokerages could be next. (MarketWatch)

-Frances Yue

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09-18-24 1700ET

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