Steno Research analyzed the impact of US Federal Reserve interest rate cuts on Bitcoin's price. Bitcoin has only experienced one such cycle, which began in 2019.
Past Experience
Between August and November 2019, when the Fed cut rates by 75 basis points, Bitcoin fell by about 15%. It wasn't until aggressive monetary stimulus during the COVID-19 pandemic in March 2020 that Bitcoin found a bottom and began its rapid rise.
Current Expectations
The first rate cut of this cycle is approaching, with the next Federal Open Market Committee (FOMC) meeting scheduled for September 18. Market estimates call for the Fed to cut interest rates by at least 25 basis points, with a 54% chance of that outcome. There is a lower 46% chance of a 50 basis point cut, which Steno Research sees as unlikely after a stronger-than-expected Consumer Price Index (CPI) report.
Impact on Cryptocurrency Market
The US interest rate is particularly important for the cryptocurrency market as it affects investors’ risk tolerance. “If the Fed’s interest rate is 5%, few people will consider investing in digital assets unless they expect returns significantly higher than 5%, given the much greater risks associated with crypto,” Steno Research said. Steno Research’s Principal Component Analysis (PCA) model shows that rising global yields tend to negatively impact Bitcoin and Ethereum prices. However, lower interest rates generally boost performance in U.S. equities and corporate credit, indirectly benefiting the crypto market.
US interest rate cuts significantly impact the cryptocurrency market. Previous measures have led to Bitcoin's decline but also to its subsequent rise amid monetary stimulus. Market expectations point to a continuation of this trend, although future behavior remains uncertain.
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