Bitcoin (BTC-USD) hit a three-week high as the crypto industry braces for the Federal Reserve's first interest rate cut in four years. Citizens JMP director of financial technology research Devin Ryan joins Market Domination to discuss how the crypto market may impacted by the Fed's rate easing cycle.

Ryan notes that the last month has been "volatile" for the crypto industry ahead of the Fed's September meeting and the November election. While easing rates will be good news for crypto, there is a lot of uncertainty around what a Harris administration will look like.

If Fed Chair Powell provides dovish guidance following the rate cut, he believes that risk assets will benefit. He explains, "Fintech has been under tremendous pressure over the last two and a half years since the Fed started raising rates... And I would say bitcoin has done well for different reasons. When we get a cut, which it looks like we're going to, that is kind of more of a risk-on condition. And so we do think that's going to be good for the crypto ecosystem, probably drive more transaction activity."

He points to the inverse correlation between fintech stocks and interest rates, noting that many fintech stocks were not profitable 3 years ago as they were borrowing at very high interest rates. However, as interest rates come down, they will have more breathing room and will be able to perform better.

Ryan adds, "What's happened over the last two and a half years, it's very interesting, is some of the really good companies have continued to grow revenues, they've cut expenses, and now they're profitable. So I think that risk has really been diminished. And so those companies, their stocks are up 100%, 150%. They're still not back to where they were at the kind of the 2021 highs. But the stocks that have not gotten to profitability in the fintech space are essentially still around the lows. So I think that just shows that there's been this divergence of both performance in terms of fundamentals, but then also why the interest rate piece matters."

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This post was written by Melanie Riehl