Impact of the Lower Interest Rates on the Bitcoin Sector by Alberto Fernandez (IEB), professor of the Master in Blockchain and Investment in Digital Assets at the IEB and head of Qubic for Europe.
The lowering of interest rates by central banks can benefit the Bitcoin sector in several ways:
1. Increase in Investment: Lower interest rates decrease the returns on traditional assets, leading investors to seek higher-yielding alternatives, such as Bitcoin.
2. Depreciation of Fiat Money: The devaluation of fiat currencies increases the attractiveness of Bitcoin as a store of value, encouraging more investment in cryptocurrencies.
3. Greater Liquidity: Low interest rates generally improve liquidity in financial markets, which can result in greater availability of capital to invest in Bitcoin and other cryptocurrencies.
Recently, the US Consumer Price Index (CPI) for May 2024 was flat, which exceeded market expectations. This had an immediate positive effect on the price of Bitcoin, which rose to $69,200.
This increase in price is due to the perception that controlled inflation can lead to a more stable economic environment, favoring investment in assets like Bitcoin that are considered a hedge against inflation.
Future perspectives
The combination of the recent halving and low interest rates creates a potentially favorable environment for the price of Bitcoin. As new Bitcoins become more expensive to produce and supply shrinks, demand from investors seeking inflation protection and better returns may increase, supporting an uptrend in the Bitcoin market.
