The market has witnessed a significant shift in its interest rate expectations since the end of January, and this should come as no surprise. During the first United States Federal Open Market Committee (FOMC) meeting of the year on January 31, policymakers surprised everyone by adopting a decidedly hawkish stance, essentially ruling out the possibility of an interest rate cut in March. Furthermore, the subsequent release of stronger-than-expected U.S. labor data on Friday further solidified this sentiment.
Currently, 83.5% of market participants anticipate that the Federal Reserve will maintain rates at their current level of 5.25%-5.5% in March, according to the CME FedWatch Tool. This is a remarkable shift from just a week ago when more than half of market participants were convinced that rate cuts were imminent. Even the possibility of a rate cut in May is now less certain, with 70% of respondents in a recent CNBC Fed Survey forecasting a cut no earlier than June.
Given the strength of the labor market, it is expected that confidence in a March rate cut would gradually diminish. The January unemployment report revealed that the U.S. economy added a staggering 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 reports of layoffs, there has been no significant weakness observed in the broader employment metrics.
In summary, despite interest rates being at a 22-year high since July 2023, the U.S. economy continues to perform exceptionally well. As Federal Reserve Chairman Jerome Powell emphasized during the post-FOMC meeting press conference, the Fed will proceed cautiously until they are certain that the threat of inflation has completely subsided.
Global markets seem to have accepted this stance without question. The S&P 500 index has hardly moved since the FOMC meeting, and Bitcoin (BTC) has remained remarkably stable within the $42,000 to $44,000 range. In fact, BTC has been trading within a $5,000 range for almost 150 days.
So what does this mean for the crypto and traditional finance (TradFi) markets for the remainder of 2024? Unfortunately, those expecting an explosive bull market in the first half of the year will likely be disappointed. The lack of volatility observed in the markets this week indicates that we are unlikely to see the anticipated influx of liquidity needed to drive the markets to new highs until the Fed implements interest rate cuts. Despite the excitement surrounding the potential approval of a Bitcoin ETF and the upcoming halving in April, both crypto and TradFi markets are likely to 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 holding their assets. Sideways trading markets present an opportunity to explore alternative investment strategies, such as crypto structured products. These products offer enhanced annual percentage yields (APYs), often come with downside protection, and can be suitable for all market conditions, including flat markets. Fortunately, there is a growing selection of these investment vehicles in the crypto market that draw inspiration from traditional investing practices.
Additionally, dollar-cost averaging (DCA) remains a tried and tested method that investors can utilize during periods of high volatility. Instead of attempting to time market entry points, regularly investing small amounts over time can yield better results. Research consistently shows that DCA outperforms market timing, especially for less experienced investors.
The advantage of a stagnant market is that it eliminates the temptation to time market entries and exits. Psychologically, it is easier to gradually invest small amounts into selected assets and wait for a breakout to higher levels.
However, it is important to note that the market may not necessarily continue to rise from its current state. Volatility is likely to return in the future, and following the Bitcoin halving in April, we may see another “sell the news” event in crypto, as seen in previous halving cycles. This is precisely why choosing a strategy and sticking to it will be crucial in 2024.
Historical data from previous halving cycles indicates that it takes 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 from this point, providing a chance to explore more sophisticated strategies. In this light, a flat crypto market may actually be a blessing in disguise. By allowing the Fed to navigate the choppy waters of its first interest rate cut decision and positioning ourselves well, we can be prepared for the bull market when it gains momentum.
Lucas Kiely, the chief investment officer for Yield App, oversees investment portfolio allocations and leads the expansion of a diversified investment product range. He previously held the position of chief investment officer at Diginex Asset Management and served as a senior trader and managing director 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.
Please note that this article is for general information purposes only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.