Key Insights:
Crypto markets could continue to see a short-term liquidity crisis till June 2025.
US Inflation data is expected to indicate a slightly higher number than last month's 3%.
Jobs data indicates a slight rise in unemployment at 4.1% opposed to 4% last month.
The Fed meeting on 18-19 March 2025 could keep the interest rates as usual but markets see the possibility of a rate cut in Q2.
Crypto market experts like Arthur Hayes believe Trump's tariff war could put pressure on the US Federal Reserve to cut rates.
The US Federal Reserve is unlikely to cut interest rates in its next meet on 18-19 March 2025. US Fed has kept the interest rates constant since September 2024, when it cut 0.5%, bringing the interest rate window to 4.25% to 4.50%.
With the FED next meeting taking place in a week, the crypto markets long for a rate cut. Markets have been undergoing a liquidity crisis lately because the Fed predicted high inflation throughout the year 2025, which essentially rules out the possibility of a rate cut.
This coupled with decent jobs data since the last quarter, has enabled the Fed to hold policy rates constant. A rate cut is usually triggered when there is a fall in employment and the inflation rate is lower than 2%. This is because a rate cut usually injects more money into the economy, giving more cash to buy goods and less interest to pay on debt.
However, there is another way that the US Fed could be cutting interest rates. A severe fall in the stock markets could present a liquidity crisis in the US economy that the Fed is bound to prevent. The analysis below by Grok summarizes this theory.
A trade war could disrupt supply chains, causing a crash in the stock market and supply-chain-disturbance-led unemployment in the economy. Both recipes for an interest rate cut.
US interest rates are at a decade high at 4.5%. Higher interest rates are not conducive for business. Further, a high interest rate regime sucks the liquidity out of the US economy, forcing people to spend less and save more.
All of these act as counter productive hindering economic growth. At a time, when the US economy has debt upwards of $35 trillion, low economic growth would result in a catastrophic decline in jobs, tax revenue, and would spiral down the economy into recession.
The crypto markets have reacted strongly to the liquidity crisis in every possible way. Bitcoin tanked to $75k levels, Ethereum saw a fall below $2000 yesterday, Shiba Inu broke down below its critical support zone along with several other cryptos. The overall crypto market cap also slid down to $2.64 trillion from $3.19 trillion a couple of weeks before.
Crypto MarketCap Tanks to $2.5 Trillion Yesterday
CoinMarketCap
In the ETF space, holders began selling their Bitcoin ETFs, raising questions on the viability of Dogecoin, XRP, and Solana ETFs that could get approval this year.
Severe Bitcoin ETF Outflows in March 2025
CoinMarketCap
As a result, the crypto market sentiment have dropped to the bottom. The Crypto Fear and Greed Index shows a score of 19 (extreme fear), while altcoin season index shows a score of 13.
Market Sentiments At Lows
CoinMarketCap
Several crypto market experts like Arthur Hayes expect the crypto markets to rise following another dip. Hayes commented on X saying the bottom for Bitcoin could be around $70k and that it would trigger a major bull rally.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.