Bitcoin Traders Position for Jackson Hole. What Powell’s Big Speech Could Mean for Crypto.

Bitcoin traders have been in profit-taking mode ahead of Federal Reserve Chair Jerome Powell’s highly anticipated speech on Friday, betting on an upset.

That’s evident in the price of the world’s largest cryptocurrency, which has fallen about 10% from its all-time high price of $124,290 on Aug. 14 as of Thursday afternoon. While consensus expectations continue to anticipate a rate cut in September, digital asset traders appear to be positioned for Powell to adopt a hawkish tone tomorrow and not signal that a cut is likely.

The Coinbase-Binance spread, or the price discrepancy in spot bitcoin (BTCUSD) between the U.S.’s largest publicly-traded exchange and the world’s largest exchange, moved into discount territory, which indicated “strong US spot selling,” according to Sean Farrell, Fundstrat’s head of digital asset strategy. “It does seem anecdotally that the consensus is that Jay Powell will be net hawkish,” Farrell said on Tuesday, adding that “risk aversion” was also indicated in bitcoin options pricing across time horizons.

Just as Powell’s tone could make or break the stock-market rally, it could blunt some of the momentum that has been driving bitcoin prices higher. Lower interest rates generally drive investors to take more risk, which would boost appetites for stocks and other speculative assets like crypto.

The upside is that the weakness seen in the days leading up to the speech could put in a bottom before the big event, Farrell said. In other words: Sell the rumor, buy the news.

Meanwhile, a barometer for U.S. monetary policy is signaling that a September cut isn’t in the bag. Futures contract traders now place a 73% probability (down from 92% a week ago) on the Fed lowering its target rate by a quarter of a percentage point, per CME FedWatch.

Ned Davis Research analysts Philippe Mouls and Pat Tschosik are “still bullish” on bitcoin. “Typically, bitcoin has a major run-up or ‘blow off top’ before every major decline. We have not had that yet, however, which leads us to believe the current ‘secular bull’ for bitcoin is not yet over.”

That said, they’re keeping an eye on Coinbase crypto trading volumes skewing to other crypto — at 55%, non-bitcoin assets have the highest share on the platform since the fourth quarter of 2021. The other factor making the analysts “nervous”: The world’s largest crypto hasn’t experienced a 50% drawdown for 661 days, roughly two months away from breaking its record of 738 days.

If bitcoin prices bounce in the short-term, stocks may soon follow. Fundstrat’s Tom Lee said on social media Wednesday: “Crypto $BTC and $ETH are leading indicators to equities. Both bottomed yesterday evening = stocks bottom by Friday.”