The Federal Reserve (Fed) may begin easing its monetary policy, which suggests significant effects on financial markets, including the cryptocurrency sector.
Possible Changes in Fed's Monetary Policy
San Francisco Fed President Mary Daly confirmed her readiness to start easing monetary policy next month, citing unexpected increases in retail sales and wholesale prices.
"I remain prepared to begin easing monetary policy as soon as next month, given the unexpectedly strong retail sales and surging wholesale prices," said Daly.
Impact on Crypto Market Liquidity
The anticipation of two rate cuts by year's end has stirred discussions regarding market liquidity. Cryptocurrency market participants are assessing potential effects of increased liquidity and investor confidence. As monetary policy shifts, market strategists are evaluating potential movements in asset flows.
Historical Trends and Their Significance for DeFi
Following the COVID-19 crisis in 2020, rate cuts led to substantial rallies in Bitcoin and Ethereum, alongside a significant rise in Total Value Locked in DeFi. This typical response underscores the potential impact of monetary easing on the current cryptocurrency market.
Given the likelihood of monetary easing, markets may experience heightened activity, which could also positively influence DeFi protocols and spur technological and market growth.
