In the week following the Federal Reserve’s significant 50-basis-point rate cut, top crypto ETFs like the iShares Bitcoin Trust ETF (IBIT) and the iShares Ethereum Trust ETF (ETHA) significantly outperformed broader market benchmarks. From September 18, the day of the announcement, through the close yesterday, IBIT soared nearly 8%, while ETHA jumped over 15%. In contrast, the SPDR S&P 500 ETF Trust (SPY) saw only a 1.5% rise, and the iShares Core U.S. Aggregate Bond ETF (AGG) experienced a slight 0.1% decline.
The broader cryptocurrency market recorded inflows of $321 million, according to CoinShares, reflecting strong investor interest following the Fed’s unexpected cut. While a relief rally in tech-driven S&P 500 ETFs might have been expected, buyers clearly favored cryptocurrencies.
Several factors likely contributed to the outperformance of crypto ETFs:
Risk-on sentiment: Lower interest rates typically encourage investors to seek higher returns in riskier assets like cryptocurrencies, moving away from safer bonds.
Technical factors: Momentum indicators and favorable chart patterns may have boosted ETF prices.
Weaker U.S. dollar: The rate cut can devalue the dollar, leading to increased investment in alternative assets like cryptocurrencies.
Increased liquidity: Easier access to capital enhances market participation, benefiting speculative investments, including crypto.
In summary, the Fed’s rate cut has bolstered risk appetite, weakened the dollar, increased liquidity, and reinforced the view of crypto as an inflation hedge, driving strong performance in crypto ETFs.
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