Overview

• Bitcoin inflows could increase due to the potential interest rate cut by the European Central Bank (ECB).
• Bitcoin might benefit from a stimulus-driven environment despite its mixed historical correlation with equities.

ECB's Monetary Policy

The European Central Bank (ECB) is expected to decrease interest rates by 0.25%, bringing it down to 4.25% on June 6. This rate reduction could stimulate investor interest in risk assets such as Bitcoin, as indicated by Jag Kooner, Head of Derivatives at Bitfinex.

Kooner explained that lower rates typically lead to a depreciation of the euro and an increase in liquidity, which can support risk assets like Bitcoin. This projection coincides with a phase of decelerating inflation in Europe.

Bitcoin and Equity Markets

The potential interest rate cut could have a positive effect on traditional equity markets and could propel Bitcoin's value upwards, according to James Wo, Founder and CEO of DFG.

Wo suggested that a rate cut might prompt a shift in liquidity towards assets with higher risk profiles like Bitcoin, thereby boosting its price. Major European stock indices such as the STOXX 600 and DAX 40, along with Bitcoin's price, experienced an upswing in May.

However, the correlation between Bitcoin and traditional equity markets has been inconsistent. In an environment driven by economic stimulus, Bitcoin could see gains alongside equities due to an increase in liquidity, as per Kooner.

Despite the underperformance of equities in the United States, Bitcoin exhibited a strong rally this year. Data for the year-to-date (YTD) period shows a significant 57.6% increase in Bitcoin's price compared to an 11.5% rise in the S&P 500 index.

Kooner emphasized that while US equities retraced, Bitcoin remained resilient. The future will reveal whether this strength indicates Bitcoin's outperformance or simply reflects its relative stability.