A Polymarket trader wagers on a 50 bps Federal Reserve rate cut, defying market expectations of a smaller 25 bps reduction, signaling potential market volatility.

Market Volatility Anticipated

A top trader on Polymarket, identified as JustWakingUp, has placed a $15,000 bet anticipating a 50 basis point (bps) rate cut by the Federal Reserve next week. This contrasts sharply with the market consensus, which, according to the CME's FedWatch Tool, assigns a 91% probability to a 25 bps cut.

Economic Data and Fed Decision

Upcoming economic data releases, particularly the U.S. Bureau of Labor Statistics' annual benchmark jobs revision, are expected to significantly influence the Fed's decision. Economists estimate this revision could reduce March 2025 totals by 700,000-800,000 jobs. Per analysts, weaker-than-expected data could strengthen the case for a more aggressive 50 bps cut.

Market Implications of Rate Cut Scenarios

A surprise 50 bps rate cut could trigger a rally in both crypto and stock markets. Conversely, a 25 bps cut, if perceived as insufficient, might lead to a muted reaction or even a market correction. According to DL News, Bitcoin dropped to $100,800 after Jerome Powell hinted that rate cuts would slow in 2025 after an initial 0.25% cut.

Expert Commentary on Market Impact

Though Fed officials at their September meeting projected four interest rate cuts in 2025, projections today show they are expecting only two for next year. The move to ultimately lower interest rates while hinting at fewer cuts next year signalled a relatively hawkish sentiment moving forward, said John Haar, Managing Director at Swan Bitcoin.

Standard Chartered has revised its forecast to predict a 50 bps cut (up from its prior 25 bps outlook) following a weak jobs report. In contrast, Morgan Stanley and Deutsche Bank maintain that only a 25 bps move is warranted. The futures market reflects this divergence, assigning roughly a 90% chance to a 25 bps cut and about a 10% chance to 50 bps.

Historical Context and Potential Rally

Tom Lee's prediction, aligns with historical patterns where similar Fed actions have propelled markets upward, offering traders a compelling narrative for potential gains in the coming months. Examining historical data reveals that Bitcoin has demonstrated a strong positive correlation with accommodative Fed policies. For example, in 2020, following emergency rate cuts amid the pandemic, BTC surged from around $5,000 in March to over $60,000 by year-end, a staggering 1,200% increase. Similarly, the 2016-2017 bull run coincided with a period of low rates and quantitative easing.

Polymarket and Prediction Markets

Polymarket is a prediction market built on Polygon, allowing users to purchase USDC for betting directly. Its data shows strong performance, with bets reaching $387 million in July and daily trading volume reaching millions of dollars. The US presidential candidate alone has more than $550 million in unsettled contracts. According to Dune's data, the number of active users of Polymarket has continued to grow this year, with the highest weekly active users exceeding 23,000.