BIT Research: Bitcoin Up 22%, Gold Up 9.4% — Will the Fed Ignite a Q4 Rally?
- Key Takeaway: U.S. debt surpassing $40 trillion combined with Treasury yields approaching 5% is driving hard assets like Bitcoin and gold higher; market focus shifts to the Fed's September FOMC meeting, where a hold could open a rebound window for risk assets.
- Key Elements:
- Since July 24, Bitcoin has gained 22% and gold has risen 9.4%, with hard assets performing strongly in a reflationary environment.
- The macro cycle is in the first stage of reflation, where historical data shows annualized returns of approximately 29% for equities, 47% for gold, and 73% for Bitcoin.
- The Fed is visibly divided: Warsh advocates for rate hikes while Waller leans toward holding steady; the probability of a September rate hike fell from 58% to 42% before rebounding to around 50%.
- The current U.S. annual inflation rate has reached 4.11%, well above the 1.61% average from 2008–2020, with money supply and debt growth at approximately 6% and 8% respectively.
- Historical patterns show the Fed typically acts only after market-implied rate hike probability rises to around 85%, and current pricing remains below that trigger threshold.
- If rates are held steady in September and inflation does not exceed expectations, the policy window could extend to December 9, providing short-term upside for risk assets.
After U.S. debt surpassed $40 trillion, Bitcoin immediately began to rally, while U.S. Treasury yields approaching the 5.0% potential psychological threshold is emerging as another important variable for the market. Since July 24, Bitcoin has gained 22% cumulatively, while gold has risen 9.4%, as hard assets strengthen further in the current macroeconomic environment.
At the same time, the macro cycle is in the first phase of cyclical reflation, typically accompanied by a weaker dollar and rising commodity prices. Historical data shows that in this environment, U.S. equities delivered annualized returns of about 29%, gold about 47%, and Bitcoin 73%. The key variable ahead will be whether the Federal Reserve raises rates at its September 16 policy meeting.
September Rate Hike Odds Remain Limited: A Fed Pause Could Open Upside for Risk Assets
Although Fed Chair Warsh has signaled a willingness to raise rates, the simultaneous weakening of the dollar, selloff in bonds, and rising yields still point to a reflationary environment. Current market pricing implies cumulative rate hikes over the next 24 months equivalent to about 3.1 quarter-point increases. If the Fed begins hiking in September, historical patterns of consecutive rate adjustments suggest the likelihood of another hike in October would also rise—just under a week before the U.S. midterm elections.
The Fed remains divided on its policy path. Warsh believes inflation is still too high, while Fed Governor Waller leans toward holding rates steady. Influenced by these remarks and economic data, the probability of a September hike briefly fell from 58% to 42%, before rebounding to around 50%. Historically, the Fed typically waits until market-implied odds of a hike reach about 85% before actually acting, suggesting the current likelihood of a hike remains relatively limited.
However, inflation remains the biggest variable. Inflation models suggest this reading could come in above the 3.4% expected by Wall Street economists, and the ISM non-manufacturing price index, which typically leads CPI by about six months, is showing signs of picking up again. Even so, a single higher-than-expected inflation reading may still not be enough to push the Fed to hike immediately. If the FOMC ultimately holds rates steady, rate-sensitive assets such as gold, Bitcoin, and equities could see a relief rally.
Asset Repricing in the Reflation Era: Tech Stocks, Gold, and Bitcoin Outperform
The current inflation environment is markedly different from 2008–2020. Back then, U.S. average annual inflation was just 1.61%, compared with 4.11% now. Meanwhile, money supply growth has remained around 6%, while U.S. debt growth has held at about 8%. In this environment, whether an asset can simultaneously outpace inflation, money supply growth, and debt growth is becoming a key consideration for asset allocation.
From a historical performance perspective, U.S. equities delivered annualized returns of 9.0% from 1975 to 2008, which fell to 5.7% from 2008 to 2020, but has risen to 18.3% since 2020. However, returns have been highly concentrated in specific asset classes, with tech stocks standing out, gold also posting strong returns, and Bitcoin outperforming all other asset classes. Tracking only the S&P 500 via SPY is no longer sufficient to capture the structural divergence in asset performance in this cycle.
Overall, the Fed's September meeting will be a key test for judging fourth-quarter market trends. Market pricing currently implies about a 60% probability of a rate hike, still below the 80%-plus level at which the Fed has historically tended to act. If the Fed chooses to hold rates steady and inflation does not surprise further to the upside, the policy window could extend at least until the next meeting on December 9, leaving room for a short-term rally in risk assets. At the same time, from a seasonal perspective, September–October pullbacks often offer more attractive entry opportunities, and risk assets typically regain upward momentum in the fourth quarter.
Some of the views above are from BIT on Target. Contact us to receive the full BIT on Target report.
Disclaimer: Markets carry risk, and investment requires caution. This article does not constitute investment advice. Digital asset trading may involve extreme risk and instability. Investment decisions should be made after carefully considering individual circumstances and consulting a financial professional. BIT is not responsible for any investment decisions based on the information provided in this content.
