Santiment warns crypto investors as rate cut expectations spike

The rise in social media chatter related to the highly anticipated decision of the Federal Reserve concerning interest rates could be a warning sign for cryptocurrencies, according to Santiment. The platform released a report, noting the effects it could pose to digital assets.

This report comes as the crypto market saw a rally on Friday, and sentiment shifted to greed after Federal Reserve Chairman Jerome Powell spoke at the annual Jackson Hole economic symposium.

At the event, the Fed boss made remarks that may have hinted that the first rate cut of 2025 could happen in September. “Historically, such a massive spike in discussion around a single bullish narrative can indicate that euphoria is getting too high and may signal a local top,” Santiment said.

Santiment calls for caution amid the Fed interest rate decision

According to Santiment, the social media mentions of keywords tied to the Federal Reserve and interest rate cuts have jumped to their highest in the past 11 months. However, it warned that the market needs to be cautious. “While optimism about a rate cut is fueling the market, social data suggests caution is warranted,” Santiment said.

In his speech, Powell mentioned that the current conditions in inflation and the labor market “may warrant adjusting” the Fed’s stance when it comes to monetary policy.

In addition, the CME FedWatch Tool has shown that about 75% of market participants are expecting the Fed to cut rates when it convenes in September. Many crypto analysts have based their market predictions on the Fed’s decision since the beginning of the year.

However, analysts are presently divided on the outcome of a potential rate cut, with some thinking it could serve as a potential bullish catalyst while others are not sold on that outcome. 

Meanwhile, others are not that sold on the idea, with most of them noting that the crypto market may not immediately see the impact of a Fed rate cut. In April, Markus Thielen, the Research head of 10x, said that expecting a bullish impulse is too early. He added that credit spreads could continue to widen, which means that “recessionary concerns may be seeping deeper into the economy.”

Thielen noted that while the long-term effects of a recession could be bullish for Bitcoin, the asset may face headwinds before gaining bullish momentum. “Normally, Bitcoin first sells off when China devalues or the Fed cuts, as the first cut might not be so impactful and also confirms economic weakness,” he said.

In the same vein, some analysts feel that if the Fed refuses to take action this year, it could lead to headwinds for the crypto market.

In March, economist Timothy Peterson warned that if the Fed refuses to cut rates in 2025, the market may experience a heavy downturn. He noted at the time that it could potentially drag Bitcoin down to under $100,000. “What it needs is a trigger. I think that trigger may be as simple as the Fed not cutting rates at all this year,” Peterson said.

If you're reading this, you’re already ahead. Stay there with our newsletter.