Federal Reserve Expected to Cut Interest Rates on September 17
The Federal Reserve is expected to cut interest rates on September 17, with a 90% chance of a reduction by 25 basis points. This shift could impact the bitcoin basis trade, which aims to profit from the price difference between spot and futures markets.
- The basis trade involves buying bitcoin in the spot market or through an ETF while selling futures to capitalize on narrowing price spreads.
- An 8% annualized return on the basis trade may become more attractive if rate cuts accelerate.
- CME bitcoin futures open interest has declined from over 212,000 BTC to around 130,000 BTC this year.
- The annualized basis remains below 10%, compared to 20% at the end of last year, due to tighter funding conditions and slowing ETF inflows.
- Bitcoin's implied volatility is low, with current levels around 40, limiting futures premiums.
- A Fed rate cut could ease liquidity, potentially increasing demand for risk assets and revitalizing the basis trade.