Ether investors betting too much on a Fed rate cut, analysts worry

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 told Cointelegraph on Thursday, as Ether (ETH) continues to trade at only 2.80% below its 2021 all-time high, according to CoinMarketCap data.

Market participants are expecting a 95.8% chance the Fed will cut rates in September, according to the CME Watch Tool

Ether “priced for perfection”

“It looks like we’re priced for perfection, and that’s always when you need to be most careful,” Hundal added, pointing to the mounting Ether ETF flows and steady funding rates

On Monday, spot Ether ETFs recorded their biggest day of net inflows ever, with flows across all funds totalling $1.01 billion. Over the past seven days alone, the asset has surged 30%.

Ether is up 74% over the past 12 months. Source: CoinMarketCapCapriole Investments founder and REF founder Charles Edwards told Cointelegraph he is highly bullish on Ether and expects its price to go higher, but agrees an unexpected move from the Fed could have an impact:

“What if the Fed, what if something happens, inflation goes up, or, you know, some unknown changes, and they decide not to cut or this, you know, or there’s a major war breakout, again.”

Edwards explains that it may “cause liquidity to get scared where capital just kind of freezes up and flows stop.”

While Edwards won’t “rule out anything,” he says he remains bullish as long as institutional demand exceeds Bitcoin's (BTC) and ETH’s supply. “Like there’s only one way price can go, to be honest,” he said

“I’m open-minded to all outcomes, but right now, I see it going a lot higher,” Edwards said.

Edwards said Ether could “probably quite easily double” in the coming months if Bitcoin climbs between $150,000 and $200,000.

“It can definitely see significant appreciation, especially given the backdrop of strong fundamentals,” he said.

Not all economists are convinced of a rate cut in September

While market participants are tipping for a rate cut in September, not all economists are convinced that this is a done deal.

On Wednesday, Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said, “The biggest thing to watch now is … are [Fed officials] going to push back on market expectations.”

“If they think the market is wrong, they will go out there, because they’ve got a job to do to talk down the market,” she said.

Related: Ether ‘marching’ toward all-time highs as traders predict $13K ETH price

Meanwhile, Jeff Schmid, Federal Reserve Bank of Kansas City president, suggested the current rate is appropriate

“With the economy still showing momentum, growing business optimism, and inflation still stuck above our objective, retaining a modestly restrictive monetary policy stance remains appropriate for the time being,” Schmid said.

On Wednesday, the July US CPI print showed inflation holding at 2.7% year-over-year, unchanged from June and below the forecast of 2.8%.

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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