- The Federal Reserve’s upcoming interest rate cut could push investors toward cryptocurrencies like Bitcoin, Ethereum, and Solana.
- Bitcoin’s price often reacts positively to increased liquidity, potentially benefiting from the expected Federal Reserve rate cut.
The Federal Reserve is set to reduce interest rates after maintaining them between 5.25% and 5.5% for 14 months. This decision will be announced during the next Federal Open Market Committee meeting, with forecasts suggesting a rate cut of either 0.25% or 0.5%. The move could lead to a shift of capital from low-risk assets like Treasury bonds to riskier investments, including cryptocurrencies.
Bitcoin is likely to benefit from this reduction
Historically, Bitcoin’s price has shown a positive relationship with increased liquidity, meaning that more money flowing into the financial system could raise its value.
Additionally, Bitcoin’s fixed supply makes it a digital alternative to gold in the eyes of some investors, especially in times when inflation might resurface. Brian Rudick, director of research at GSR, pointed out that Bitcoin’s price has correlated strongly with global liquidity.
Meanwhile, Vincent Deluard, global macro director at StoneX, predicts that inflation could rise again due to continued government spending, which might prompt the Federal Reserve to halt further rate cuts. Despite this risk, Bitcoin and gold often attract investors seeking value preservation during inflationary periods.
INFLATION IS A PROCESS, NOT AN EVENT
Happy to share and chat over DM – quote is from last week's report
"To quote Matthew, no one knows the day or the hour when these things will happen, but I remain convinced that the next shock will be inflationary, because the underlying… pic.twitter.com/JCzEXf4iLH
— Vincent Deluard (@VincentDeluard) September 11, 2024
Ethereum and Solana, on the other hand, may follow Bitcoin’s lead
When Bitcoin rises, other cryptocurrencies tend to move in the same direction. However, differences exist: Bitcoin and Ethereum both have U.S.-based exchange-traded funds (ETFs), but Solana does not, which could limit its growth. Moreover, demand for Ethereum’s ETFs has been weaker than Bitcoin’s, which might affect its future performance.
Deluard added. “Financial repression saved the US, European, and Japanese governments $8 trillion in the past decade: why would governments and central banks stop here?”
The Federal Reserve’s interest rate cuts could boost Bitcoin, with a potential positive impact on Ethereum and Solana as well. However, much of their performance will depend on how Bitcoin behaves in the months ahead.
