tl;dr
Ether's recent surge above $4,700 is largely driven by expectations of a US federal rate cut in September. Market participants are pricing in a high likelihood of this cut, leading to concerns that Ether is "priced for perfection." Significant inflows into Ether ETFs and rising prices have fueled op...
Ether’s recent rally to over $4,700 is being largely propped up by expectations of a US federal rate cut in September, which could prove disastrous if it doesn’t eventuate, crypto analysts warn. “The main issue right now is that the whole market move is based on an assumption that the Fed will give the market a rate cut next month,” Swyftx lead analyst Pav Hundal noted as Ether continues to trade just 2.80% below its 2021 all-time high.
Market participants are pricing in a 95.8% chance of a September rate cut according to CME Watch Tool data, leading to what some experts describe as Ether being “priced for perfection.” Hundal cautions investors to be careful given mounting Ether ETF inflows and steady funding rates. Just this past Monday, spot Ether ETFs recorded their biggest day ever in net inflows, gathering over $1 billion, while the asset surged 30% in the last week alone.
Charles Edwards, founder of Capriole Investments and REF, shares a bullish outlook on Ether, expecting its price to climb higher. However, he highlights potential risks such as unexpected Federal Reserve decisions, inflation spikes, or geopolitical upheavals that could freeze liquidity and halt capital flows. Despite these concerns, Edwards believes institutional demand combined with supply constraints points towards significant price appreciation, suggesting Ether could easily double if Bitcoin reaches between $150,000 and $200,000.
Not all economists agree on the inevitability of a September rate cut. Morgan Stanley’s Ellen Zentner emphasizes that the Federal Reserve may push back against market expectations if they deem them incorrect, fulfilling their duty to talk down overheated markets. Similarly, Jeff Schmid, president of the Federal Reserve Bank of Kansas City, indicates maintaining a modestly restrictive monetary policy remains appropriate amid ongoing economic momentum and inflation levels above target.
Recent US inflation data adds to the uncertainty, with July’s CPI holding steady at 2.7% year-over-year—unchanged from June and slightly below forecasts. As Ether’s price hangs on the hope of a policy shift, investors face a delicate balancing act between optimism and caution in the volatile crypto landscape.