Wharton professor Jeremy Siegel called for the Federal Reserve to deploy an emergency rate cut as liquidity fled cryptocurrencies and global markets on recession fears.

Cryptocurrency markets dropped over $300 billion in 24 hours as assets like Bitcoin (BTC) and Ethereum (ETH) slid double-digits alongside traditional markets like the S&P 500 and the Nasdaq. The U.S. stock market also extended losses on recession fears, losing $1.93 trillion when trading opened on Monday, August 5.

Wharton’s Siegel urged the U.S. Federal Reserve to implement a 75-basis-point emergency interest rate cut to stem a global liquidity crunch.

In theory, Siegel’s proposed Fed pivot could provide much-needed relief for American financial markets. Extra liquidity on Wall Street could find its way into crypto markets, steadying prices and cushioning embattled digital asset valuations.

Institutional vehicles are already showing an appetite for crypto-backed funds. Spot Bitcoin exchange-traded funds saw $1.3 billion worth of trading volume in the opening 20 minutes of trading. While ETF data is typically staggered, spot BTC ETF investors may buy the dip, and inflows turn out positive.

Polymarket users pile $3.3m on Fed cut bets

Meanwhile, bettors on the Polygon-based decentralized prediction market, Polymarket, have placed $3.3 million on wagers about Fed interest cuts this year.

The second-largest punter pick expects three 75 bps cuts between August and December. The Federal Open Market Committee calendar shows meetings in September and November, respectively, with markets pricing in a rate cut next month.

Three cuts before 2024 ends would require the Fed to announce an emergency policy switch amid global market downturns. However, it was unclear if the American apex bank would adopt such an aggressive pivot or how crypto markets would react to the fund rate change. 

Before global recession concerns gripped markets last week, crypto proponents generally perceived a rate cut as a positive development.

The likelihood of the U.S. Federal Reserve cutting rates in September looks bullish for Bitcoin and crypto investors, QCP Capital analysts wrote in an Aug. 1 report.

On July 31, minutes from the Federal Open Market Committee meeting revealed that Fed chair Jerome Powell and other officials at the American apex bank decided to leave interest rates unchanged.

Powell and the Fed maintained tighter monetary policies for another month, keeping rates between 5-5.5% as the regulator held out for more positive economic data.

According to QCP Capital, the FOMC minutes suggest that the Fed leans toward dovish policies as the year inches toward its final quarters. “A September cut has been fully priced in,” QCP analysts wrote in an Aug. 1 note.

Jag Kooner, head of derivatives at Bitfinex, echoed QCP’s sentiment, adding that a September rate cut would bolster bullish momentum and improve market liquidity. Bitcoin (BTC) and other cryptocurrencies regarded as risk assets would benefit from more capital inflows as investors seek higher returns from outside the stock market. 

Kooner said: “There is a lot of confidence in the market at the moment, particularly as even potentially  negative news like the  Mt. Gox Distribution, German Government selling, and many recent significant Chain movements have not been able to impact the Bitcoin price to the downside substantially.”

Bitcoin adoption on the rise

Bitcoin was created as a decentralized alternative to distrusted centralized systems. Fifteen years after its launch, the leading cryptocurrency is a centerpiece in conversations around national reserves and sovereign holdings.

U.S. presidential candidates like Donald Trump and Robert F. Kennedy Jr have proposed creating a sovereign Bitcoin reserve. America’s existing $12 billion stockpile would form the bulk of such a move, while RFK Jr advised the U.S. to buy more Bitcoin.

If America proceeds with this plan, it could set a precedent for other countries to add Bitcoin as a reserve asset. This could bring more BItcoin under state control and transform the wider cryptocurrency landscape.

While some proponents hail the move as the next step in Bitcoin adoption, skeptics wonder if government-owned Bitcoin troves were part of Satoshi Nakamoto’s vision, the infamous creator of Bitcoin.