The market has witnessed a significant shift in interest rate expectations since the end of January, and this development shouldn’t come as a surprise. During the first United States Federal Open Market Committee (FOMC) meeting of the year on January 31, policymakers took a surprisingly hawkish stance, effectively ruling out the possibility of an interest rate cut in March. Subsequently, U.S. labor data surpassed expectations, further solidifying the shift in sentiment.
According to the CME FedWatch Tool, a remarkable 83.5% of market participants now anticipate that the Federal Reserve will maintain rates at the current level of 5.25%-5.5% in March. This is a stark contrast to just a week ago when more than half of market participants believed that rate cuts were imminent. Furthermore, even a May rate cut is now less certain, with 70% of respondents in a recent CNBC Fed Survey predicting that a cut will not occur before June.
Given the strength of the labor market, it is to be expected that confidence in a March rate cut has gradually waned. The January unemployment report revealed that the U.S. economy added an impressive 353,000 jobs, nearly double the analysts’ expectations of 185,000. Unemployment currently stands at a multi-year low of 3.7%. While there have been some talks of layoffs, there hasn’t been any significant weakness observed in the broader employment metrics.
In summary, despite interest rates remaining at a 22-year high since July 2023, the U.S. economy continues to thrive. Federal Reserve Chairman Jerome Powell emphasized during the post-FOMC meeting press conference that the Fed will exercise caution until inflationary threats have dissipated completely.
It seems that global markets have accepted this stance without much reaction. The S&P 500 index has shown little movement since the FOMC meeting, and Bitcoin has remained relatively stable between $42,000 and $44,000. In fact, Bitcoin has been trading within a $5,000 range for almost 150 days.
So, what does this outlook on U.S. monetary policy mean for the crypto and traditional finance (TradFi) markets for the remainder of 2024? Unfortunately, those expecting a dramatic bull market in the first half of the year may be disappointed, as the lack of volatility witnessed this week indicates what lies ahead. Until the Fed finally implements interest rate cuts, the much-anticipated injection of liquidity required to drive the markets to new highs is unlikely to materialize. Despite the excitement surrounding the potential approval of a Bitcoin ETF and the upcoming Bitcoin halving in April, it is probable that both crypto and TradFi will remain stagnant until the second half of 2024.
However, just because the Fed is maintaining its position doesn’t mean that investors are limited to only HODLing. Sideways markets present an opportunity to explore alternative investment strategies, and there are plenty to choose from. For instance, crypto structured products offer the potential to maximize returns without taking on excessive risk. These vehicles provide enhanced annual percentage yields (APYs), often come with downside protection, and are suitable for all market conditions, including flat markets. The good news is that the crypto market offers a growing selection of these investment options, which have their roots in traditional investing.
Another tried and tested method is dollar-cost averaging (DCA). When crypto volatility is high, many investors attempt to time the market entry points. However, it is worth remembering the old adage that “Time in the market beats timing the market.” Extensive research has shown that DCA generally outperforms market timing, especially for inexperienced investors.
The advantage of a stagnant market is that there is no temptation to time entry and exit points. Psychologically, it is much easier to consistently invest small amounts in selected assets and wait for a breakout to higher levels.
This doesn’t imply that the only direction for the market is upward from here. Volatility will likely return in the future, and as seen in previous halving cycles, there may be a “sell the news” event in crypto following the Bitcoin halving in April. However, this underscores the importance of choosing a strategy and sticking to it in 2024.
Historically, it has taken between 220 and 240 days for Bitcoin to reach a new all-time high after a halving. This suggests that we may not witness the next all-time high until the end of the year. Therefore, there are nearly 11 months, or 46 weeks, of DCA opportunities or a chance to explore more sophisticated strategies. When viewed from this perspective, a flat crypto market may indeed be a blessing in disguise. Let the Fed navigate the choppy waters of its first interest rate cut decision of the cycle, and position oneself well for when the bull market takes full effect.
Lucas Kiely, the Chief Investment Officer for Yield App, oversees investment portfolio allocations and leads the expansion of a diversified investment product range. Previously, he served as the Chief Investment Officer at Diginex Asset Management and held senior trading and managing director roles at Credit Suisse in Hong Kong, where he managed QIS and Structured Derivatives trading. He also served as the Head of Exotic Derivatives at UBS in Australia.
Disclaimer: This article is intended for general informational purposes only and should not be construed as legal or investment advice. The views expressed in this article belong solely to the author and do not necessarily represent or reflect the views and opinions of Cointelegraph.