The recent rise of Ether to over $4,700 is largely being supported by expectations of a U.S. federal rate cut in September, which could be disastrous if it doesn't materialize, warn cryptocurrency analysts.
"The main problem right now is that all market movement is based on the assumption that the Fed will give the market a rate cut next month," said Swyftx's chief analyst, Pav Hundal, while Ether continues to trade just 2.80% below its all-time high from 2021, according to CoinMarketCap data.
Market participants expect a 95.8% chance that the Fed will cut rates in September, according to the CME Watch tool.
"It seems that our price is perfect, and that's when you need to be most careful," Hundal added, pointing to the rising flows of Ether ETFs and stable funding rates.
On Monday, spot Ether ETFs recorded their largest net inflow day in history, with total flows across all funds amounting to $1.01 billion. Just in the last seven days, the asset has risen by 30%.
The founder of Capriole Investments and founder of REF, Charles Edwards, said he is very optimistic about Ether and expects its price to rise, but he agrees that an unexpected move from the Fed could have an impact:
"What if the Federal Reserve, what if something happens, inflation rises, or, you know, some unknown changes, and they decide not to cut or this, you know, there's a big war, again?"
Edwards explains that this can "cause liquidity to be scared and capital to simply freeze and flows to stop."
Although Edwards does not rule anything out, he claims to remain optimistic as long as institutional demand outstrips the supply of Bitcoin and Ethereum. "To be honest, the price can only go up in one direction," he stated.
"I am open to all outcomes, but right now I see it can go much higher," said Edwards.
Edwards said that Ether could "easily double" in the coming months if Bitcoin rises between $150,000 and $200,000.
"It can certainly experience significant appreciation, especially considering the backdrop of solid fundamentals," he stated.
Although market participants are predicting that there will be a rate cut in September, not all economists are convinced that this is a foregone conclusion.
On Wednesday, Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said: "The most important thing to keep in mind right now is... if [Federal Reserve officials] are going to counteract market expectations."
"If they believe the market is wrong, they will take to the streets, because their job is to discourage it," he said.
Meanwhile, Jeff Schmid, president of the Federal Reserve Bank of Kansas City, suggested that the current rate is appropriate.
"With the economy still showing momentum, rising business optimism, and inflation still stagnant above our target, maintaining a moderately restrictive monetary policy stance remains appropriate for the time being," said Schmid.
On Wednesday, the release of the U.S. Consumer Price Index for July showed that inflation remained at 2.7% year-on-year, unchanged from June and below the forecast of 2.8%.
