A crypto market rally is underway, with Ethereum price jumping to a record high and the market capitalization of all tokens retesting the $4 trillion milestone. Bitcoin is hovering at $116,000, while tokens like Pudgy Penguin, Arbitrum, and AAVE are leading with over 15% gains.

Crypto market rally sparked by Jerome Powell speech

The ongoing crypto market rally was sparked by Jerome Powell who had a closely-watched speech at the Jackson Hole Symposium in Wyoming on Friday. 

This speech came at a difficult time for the US economy, with data showing that it is teetering on the verge of a stagflation. The labor market has cooled, with the unemployment rate ticking upward, reaching 4.2% in July.

The BLS downgraded the previous month’s two reports and indicated that the economy created just 35k jobs in June and May. It added 73k jobs in July, a figure that will come down in the next revision. 

US inflation, especially in the producer side, is also ticking upwards and recently jumped to 3.7%. The core CPI, which excludes the volatile food and energy prices, rose to 3.1%.

S a result, faced with these numbers, the central bank has a choice to make. It can cut interest rates with the goal of boosting the labor market, a move that would risk inflation rising. 

On the other hand, the bank can decide to maintain higher rates and hope that inflation will come down. The challenge is that this inflation is not organic, rather, it is an artificial one caused by Donald Trump’s tariffs. 

In his statement, Powell leaned on the former side and noted that his focus in the next meetings will be to safeguard the labor market. He said:

“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”

Crypto sentiment was weak before his speech

The crypto market rally happened as investors now believe that the Fed will cut interest rates in the September 17 meeting. Cryptocurrencies and other risky assets do well when the Fed is cutting interest rates. 

However, there are chances that the crypto market rally would happen even if he had delivered a highly hawkish statement. That is because market participants expect the bank to ultimately cut interest rates either later this year or in 2026 when Trump replaces Jerome Powell. 

Also, the market sentiment was weak before the speech. Bitcoin was down from the all-time high of $124,200 to a low of $112,000 and Ethereum moving much lower. As such, chances are that market participants would have bought the dip. This is the opposite of buying the rumor and selling the news.

Read more: BTC shoots past $116K on macro optimism; altcoins OKB, MORPHO lead weekly gains

What next for cryptocurrencies?

The most likely scenario is where the crypto market continues the ongoing rally. That’s because there are still catalysts that will push it higher in the longer term. 

In addition to the potential interest rate cuts, there is strong demand from investors as evidenced by the rising ETF inflows and the rising number of crypto treasury companies.

Further, top cryptocurrencies like Ethereum and Bitcoin have formed bullish chart patterns. Most importantly, the SEC will approve spot crypto ETFs later this year, boosting their prices.

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