𝐓𝐡𝐞 𝐅𝐞𝐝 𝐡𝐚𝐬 𝐫𝐞𝐝𝐮𝐜𝐞𝐝 𝐔.𝐒. 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐫𝐚𝐭𝐞𝐬 𝐛𝐲 𝟎.𝟓 𝐩𝐨𝐢𝐧𝐭𝐬, 𝐦𝐚𝐫𝐤𝐢𝐧𝐠 𝐭𝐡𝐞 𝐟𝐢𝐫𝐬𝐭 𝐫𝐚𝐭𝐞 𝐜𝐮𝐭 𝐢𝐧 𝟒 𝐲𝐞𝐚𝐫𝐬. Let's explore the impact on Bitcoin and the S&P500. Bitcoin is a relatively new asset, so it did not experience the 2007-2008 financial crisis. However, in 2019, it was influenced by interest rate cuts. Interestingly, the Fed began cutting rates before the Corona Dump (a sharp market drop due to the COVID-19 pandemic). Since then, no further cuts were made—until today, with the Fed confirming another 0.5-point reduction.
Typically, the impact of rate cuts on Bitcoin's price is relatively minor, causing only short-term volatility. For example, in 2022, Bitcoin was in a bearish trend while the Effective Federal Funds Rate was rising. This suggests that a sustained drop in the rate may only impact Bitcoin if it lasts several months.
For the S&P500, a broader analysis shows that a continuous decline in the rate has historically linked to financial crises like the Dot-com Bubble, the 2007-2008 Financial Crisis, and the Corona Dump. Before a financial recession, the Fed reduces interest rates steadily, affecting the entire market. Red zones indicate large cuts, often triggering higher volatility.
Beyond the Effective Federal Funds Rate, other market metrics may better predict recessions, but for Bitcoin and crypto, Onchain Metrics are the best tools due to their strong price correlation. While traditional markets impact crypto, major declines can catch investors off guard. Combining Onchain metrics, market indicators, and sentiment analysis is key for better accuracy.
