Is the Fed About to Launch the Next Crypto Mania?
As the Fed cuts rates while stocks sit at all-time highs, it risks fueling a 1999-style mania in both tech stocks and cryptocurrencies.
A few days ago I published a thesis that the Fed, which is set to cut interest rates into the end of the year and beyond, may be about to recklessly launch a 1999-style stock market mania centered around artificial intelligence. This time around it would be AI taking the place of dot-com stocks as investors get whipped up into a frenzy as the bubble inflates to unforeseen heights. As an extension of that thesis is another thesis that I want to publish today, which is that if the Fed indeed does launch another insane tech bubble, it will also most likely launch a cryptocurrency mania as well due to crypto’s strong correlation with tech stocks.
I want to preface this report by making it clear that I am not a believer in cryptocurrencies. In fact, I’m deeply skeptical of them for the 24 reasons I outlined in this detailed report. That said, I seem to have an uncanny ability to analyze and trade crypto effectively, even though I don’t believe in it as a long-term investment or form of money. My successful bullish Bitcoin calls include early 2016, 2019, 2020 ahead of the 7x bull run, the rally since October 2024, and the recent breakout to all-time highs.
With that said, in order to fully understand the crypto thesis, I recommend reading my stock market mania thesis from a few days ago. The gist is that there are strong parallels between the current environment and 1998, when credit and stock market turmoil led the Fed to cut rates by 75 basis points in the fall.
While those cuts calmed the immediate turmoil, they also poured gasoline onto the flame of the nascent dot-com bubble, causing the tech-heavy Nasdaq 100 to surge nearly fourfold over the following year and a half before crashing. This time, the Fed is preparing to cut rates again due to a weakening labor market, but with the AI boom/bubble already running hot, those cuts are likely to send it into overdrive—just like dot-com stocks in 1999.
If a Fed-induced tech stock bubble is ahead, I strongly believe it would also trigger a mania phase and bubble in cryptocurrencies due to their very strong correlation with tech stocks. When I last ran the numbers in June using weekly data going back to 2019, I found a striking 92% correlation between Bitcoin and the Nasdaq 100, which is clearly visible in the chart below.
When tech stocks are rising and optimism is high, that enthusiasm often spills over into crypto. This is partly because both markets tend to attract a similar type of investor: someone who is optimistic about technology, often techno-utopian, comfortable with and willing to embrace an increasingly virtual world, and typically younger, male, and not afraid of high risk and extreme volatility.
Now that I’ve presented the thesis that a Fed-induced tech stock mania may be ahead and likely to spill over into crypto, I want to share additional supporting details and evidence that reinforce its likelihood. To begin, let’s look at the Global 30 Crypto Index’s monthly logarithmic chart dating back to 2020. This index tracks the top 30 cryptocurrencies by market capitalization and can be thought of as the crypto equivalent of the Dow Jones Industrial Average.
Interestingly, the chart shows a cup and handle pattern that has been forming over the past four years. If it breaks above its 32,000 resistance level, it is likely to surge much higher and mark the beginning of a new crypto bull market.
Further confirmation that a crypto mania may be ahead comes from Blockchaincenter.net’s Altcoin Season Index (show in the chart below), which currently shows that the market is in an “altcoin season.” This is a period when alternative cryptocurrencies experience significant price surges and often outperform Bitcoin, as capital rotates out of Bitcoin and into smaller, more speculative cryptos. Indeed, a wave of articles published this week are claiming that altcoin season has officially begun.