Last night, the Federal Open Market Committee (FOMC) decided to cut interest rates for the first time since March 2020. The Fed authorities cut by a whopping 50 basis points, bringing rates to 4.75-5.00%. In a press release sent to our editorial office, Sebastian Seliga from zondacrypto explained what this means for the cryptocurrency market.
Fed Cuts Rates. How Will This Decision Affect the Cryptocurrency Market?
Sebastian Seliga predicts what will happen now. First, cheaper money will appear on the market, and thus we will see greater liquidity.
A reduction in interest rates usually leads to (banks offering) cheaper credit and increased liquidity in financial markets. Investors looking for more profitable assets may move capital from traditional markets such as bonds and bank deposits to more speculative assets such as cryptocurrencies. Bitcoin, as a high-risk but potentially higher-reward asset, may gain in attractiveness in such an environment
– explains Seliga.
But that’s not all. On top of that, there’s the weakening of the dollar and maybe even higher inflation.
Lower interest rates often lead to a weakening of the dollar, as lower rates can reduce demand for the U.S. currency. If the U.S. currency weakens, investors may look for alternative forms of storing value, which could lead to increased demand for bitcoin, seen by some as “digital gold.” Additionally, if a rate cut increases inflation, BTC could become a more attractive hedge against depreciation
– predicts zondacrypto expert.
To make things less rosy, it is worth adding that a change in US monetary policy may also lead to greater volatility:
The reduction in interest rates could also increase volatility in traditional financial markets, especially if investors begin to perceive the FOMC decision as a signal of impending economic troubles (e.g., recession). In such an environment, capital may move in search of “safe havens,” and bitcoin, while historically volatile in price, could become one of those assets that attracts more attention from investors seeking protection against financial crises.
Is this good for bitcoin?
To sum up, how will all this affect the cryptocurrency market? Seliga has no doubts:
In a lower interest rate environment, investors may be more willing to take risks as returns on more conservative investments (such as bonds) are limited. Cryptocurrencies, including bitcoin, may attract more speculative capital, especially during periods when the risk of a global recession seems lower and economies encourage investment.
It is worth adding that more interest rate cuts are likely ahead. The zondacrypto analyst claims that “the FOMC move could signal further monetary policy easing in the future, which would potentially fuel further waves of growth in speculative asset markets.
If investors anticipate that rates will remain low for an extended period of time, this could result in capital flowing into cryptocurrency markets, including Bitcoin.
– he added.
Yesterday, a new stage in the bitcoin cycle began. The Fed’s interest rate cut may have a positive impact on the price of the main cryptocurrency. This will be possible especially in the context of the weakening of the dollar, which is already taking place.
The text does not constitute investment advice.
