Fed’s Rate Cuts Likely to Affect Bitcoin Price, Here’s How
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August 01, 2019
Weaker USD may be good news for Bitcoin price which could pick up more because of the quarter-percent rate cut. The move has been seen as preventative by economists but could also be a catalyst for the next financial crisis.
Bitcoin price has been pretty much steady ever since it posted its 2019 high of $13,880 on June 26. From that point, the market has been on a recession with some short-termed jumps. This kind of market is not really interesting for day traders because there are no wild jumps to react with profit. It’s also boring for momentum traders and trend followers because they have to wait for the trend to start again.
However, some of those traders went optimistic when Fed decided to cut its interest rates. Just for reminder, yesterday the Federal Reserve announced cutting interest rates for the first time since the 2008 financial crisis, the year the Bitcoin whitepaper was released. In a much anticipated, live-streamed announcement today, Fed chair Jerome Powell said it is cutting the interest rate by 25 basis points, or 0.25%.
That Fed rates cut could reflect on the Bitcoin price isn’t anything new. When rates are going down – people are spending more and saving less. At the time of writing Bitcoin was up 1.8% to $9,939.20, pretty much near the psychological level of $10k.
According to some high-profile analysts, including co-founder of Fundstrat Global Advisors Tom Lee, the expected rate cut could be good news.
Weekend is starting in US, and past few weekends led to weakness in #bitcoin
– Fed is expected to cut interest rates next week.
– Lower rates = weaker USD = Upside for Bitcoin $BTC
— Thomas Lee (@fundstrat) July 27, 2019
For now, he seems to be right. If anything, this is the first time the Fed cut interest rates in the U.S. as long as Bitcoin has existed. The so-called Fed Funds Target Rate reached its lowest point of nearly zero in 2008 before rate hikes started in early 2016. Since then, rates have been hiked nine times until today, when the first cut is widely expected to take place today.
However, Twitter community may think differently, at least if it’s to believe to this poll:
Fed lowering rates is…
— Anthony Elia (@huobi) July 31, 2019
The thing is, and we cannot forget it, that Bitcoin, thus it has been profiting on the U.S. – China trade war, still has a lot of issues to be resolved. It has recently been forbidden by the Indian government and also the Treasury Secretary Steven Mnuchin called it a national security threat during a recent White House press briefing.
Anthony Pompliano, the co-founder and partner at Morgan Creek Digital Assets, said a few days ago that US economy was declining on a quarter-to-quarter basis. He added that the Fed’s decision to cut rates or to increase the money supply means investors would hedge into non-correlated assets.
ROCKET FUEL: They’re going to cut rates and print money right as we march towards the Bitcoin halving.
Buckle up. This will be wild 🚀 pic.twitter.com/QotDXKTJRj
— Pomp 🌪 (@APompliano) July 25, 2019
However, after Fed announced its news, the Dow Jones Industrial Average dropped sharply. In the past, as economic disturbances went worse, up went the price of gold, and some “safer” currencies as are Swiss franc or Japanese yen.
Gold’s limited quantity and endurance is a natural choice when the economic crisis shows up. Until now, both Bitcoin and gold price have been related to each other.
Bitcoin was designed in the rise of the 2009 financial crisis and just experienced the first-ever federal rate cut since it existed. Bitcoin is pitched as the digital version of gold, sharing many similarities.
However, some analysts argue that Bitcoin is no way the store of value. Finance author Lawrence Meyers says that it doesn’t really matter if the money is cheaper to borrow because there has been just a limited portion of the population that is able to borrow money against some real form of collateral in the first place.
Also, he says that even then, any such amount would be so insignificant as to not cause more than a small movement in the price of any security, much less Bitcoin.
We are not sure about that but want to emphasize that there are much more reasons why we should look optimistically on the Bitcoin price. One of it is launching of multiple Bitcoin Futures Exchanges among which first already is launched. Yesterday, Bitcoin derivatives provider LedgerX launched their first physically-settled Bitcoin futures contracts in the U.S. and soon the same will be done by the Intercontinental Exchange’s Bakkt and TD Ameritrade-backed ErisX.