On Monday, Bitcoin rises to test one month high, extending last week’s gains across crypto and risk assets, including stocks. This surge follows the U.S. Federal Reserve’s recent rate cut decision.
The Fed surprised economists by lowering its benchmark interest rate by 50 basis points on Wednesday, instead of the anticipated 25 basis points. This move marks the first rate reduction in four years.
Crypto analysts view this rate cut as a strong catalyst for market activity, particularly for Bitcoin. Despite its uptrend, Bitcoin has yet to reclaim its March all-time high of over $73,800.
The Federal Reserve’s Rate Cut: Impact on Bitcoin
Bitcoin prices climbed by 2% on Monday to $64,000, the highest since August 26, according to CoinGecko data. Matthew Graham, managing partner at Ryze Labs, stated, “Given that crypto is fundamentally a risk-on asset class, in our view, the shift to a regime of lowering interest rates represents a significant bullish catalyst. For the last several years, crypto prices, including Bitcoin, have been influenced by international macroeconomic conditions more than any other single factor.”
The Federal Reserve adjusts the federal funds rate to manage inflation, promote employment, and maintain economic stability. The challenge for the central bank remains finding the balance between overstimulating the economy and preventing another cycle of high inflation.
Global Central Banks’ Policies and Bitcoin’s Volatility
While the U.S. Fed initiated its rate cutting cycle, the
Bank of Japan
held interest rates steady. Meanwhile, the Bank of England paused its rate cuts, opting for a gradual approach following its first rate cut in August.
Central bank decisions on interest rates significantly affect liquidity and investor behavior. These decisions can drive capital into speculative assets like cryptocurrencies. As the Fed cuts rates and other banks pause or hold steady, this divergence creates market uncertainty, potentially leading to crypto market volatility or stagnation.
According to a note from QCP Capital on Friday evening, with much of the rate cut-related euphoria now behind us, crypto prices might be taking a “breather”. The Singapore-based digital asset trading firm observed a recent dip in Bitcoin’s options contracts volatility, indicating a move towards policy normalization.
A decrease in volatility often means less extreme price swings, suggesting that traders do not anticipate dramatic near-term changes.
Daily Debrief Newsletter
Start every day with the top news stories right now, plus original features, a podcast, videos and more.
