The unexpected rate cut by the Federal Reserve has caused a surge in the prices of US-listed cryptocurrency stocks amid the growing crypto market. This article examines the effects of the Fed's move on crypto stocks, the market's reaction, and the long-term consequences of this change.
The Fed Rate Cut and Its Consequences
The Federal Reserve, in an attempt to stimulate economic activity, took a drastic measure on September 20, 2024, by reducing the interest rate by 0.5%. This was one of the largest rate cuts in recent times. The decision was driven by concerns over the rate of economic growth, inflation, and the effects of high interest rates on the economy. The Fed's rate cut turned financial markets upside down, with the cryptocurrency market being one of the most prominent beneficiaries. In the US, especially, crypto-related stocks listed on exchanges saw a rise, as investors viewed digital assets as a hedge against inflation and economic downturns.
Crypto Stocks’ Impressive Rally
Many crypto stocks, especially those associated with blockchain and cryptocurrency trading, saw significant rises. Stocks of Coinbase, Marathon Digital Holdings, Riot Platforms, and others experienced substantial boosts in value. Coinbase, the largest US-based cryptocurrency exchange, saw its stock surge by more than 12% following the Fed's rate cut announcement. Datamine LLC, a North American cryptocurrency mining service provider, noted that Marathon Digital Holdings, a major Bitcoin miner, saw its stock prices soar by 15% in the last month. Investors are viewing crypto equities as a more interesting and better investment opportunity than standard equities in the current economic climate.
Bitcoin and Ethereum Surge
The Fed's rate cut significantly influenced the prices of major cryptocurrencies. Bitcoin, which had been ranging before the announcement, reached fresh local highs of $62,600, one of the highest points in the last two months. Second only to Bitcoin, Ethereum also increased in value by 8% following the rate cut. The entire market cap of cryptocurrencies increased considerably, buoyed by optimism following the rate cut and assumptions of increased liquidity in the market for riskier assets like cryptocurrencies.
The Fed's rate cut has long-term implications for the cryptocurrency market. Lower interest rates negatively impact fiat currencies, particularly the dollar, providing a favorable market outlook for cryptocurrencies as a store of value. If the Fed continues with its expansionary monetary policy, it could promote the perpetual growth of cryptocurrencies. Additionally, increased participation of institutional investors in the crypto market may further contribute to its growth, as institutions predict low interest rates in the coming years and are likely to invest in cryptocurrencies as DeFi accelerants and anti-inflation hedges.
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