Fed rate cuts expected to boost crypto markets
The recent decision by the Federal Reserve to cut interest rates is likely to have a significant impact on cryptocurrency markets, Nirun Fuwattananukul, CEO of BINANCE TH, said on Monday, ratcheting up the optimism of crypto investors already buoyed by the news coming out of last week’s Federal Open Market Committee (FOMC) meeting.
“We expect the recent rate cuts to have a sizable impact on digital asset prices. Lower interest rates increase liquidity in the financial system, driving up demand for higher-yielding, riskier assets, including crypto,” Nirun said.
He pointed out that the rate cuts mark a significant shift from the Fed’s previous strategy. Following the Covid-19 pandemic, the Federal Reserve initiated 11 rate hikes in just over a year to keep inflation in check without tipping the economy into a recession.
Historically, cryptocurrencies like Bitcoin react negatively to rate hikes aimed at curbing inflation. Conversely, rate cuts are generally seen as bullish for cryptocurrencies, which are considered risk assets, with BTC seeing a 375% increase between February 2020 and February 2022 when rates were near zero.
Lower interest rates are expected to:
- Reduce borrowing costs, potentially increasing capital flow into risk assets like crypto.
- Make Bitcoin’s anti-inflationary qualities more attractive as inflation concerns rise.
- Potentially weaken the US dollar, enhancing the appeal of cryptocurrencies as a hedge against currency devaluation.
Crypto-specific factors
Beyond macroeconomic factors, several crypto-specific elements could influence market performance. These include:
- The recent Bitcoin halving, which has historically led to price increases 6-18 months afterwards.
- The availability of spot ETFs, potentially easing the transition between equities and crypto.
- Seasonal trends, with prices often picking up from October onward after a typically weak September.
“The recent Bitcoin halving and the availability of spot ETFs could increase liquidity from rate cuts to flow into crypto markets,” Nirun said.
While the outlook appears positive, experts caution that the effects of Fed rate cuts on the digital-asset market remain uncertain. Nirun acknowledges this, but notes that historical trends and unique crypto-specific factors further bolster optimism that these policy changes could catalyse growth.
BINANCE TH, launched in November 2023, is a joint venture between Binance Capital Management Co., Ltd. and Gulf Innova Co., Ltd. The company received digital asset exchange and brokerage operator licences from Thailand’s Ministry of Finance in May 2023.
