Bitcoin has been on the rise after the US Federal Reserve's (Fed) interest rate decision. How have Fed decisions affected Bitcoin in the last 10 years?
The Fed has lowered interest rates by 50 basis points, lowering the target range to 4.75%-5%. While rate cuts are expected to create more favorable conditions for risky assets, it is not clear how this one will affect the cryptocurrency market.
The historical relationship between interest rate cuts and Bitcoin
A statement by Lookonchain confirms that Bitcoin thrives in periods of low interest rates. For example, Bitcoin experienced one of its most impressive bull runs between early 2020 and late 2021 when the Fed cut interest rates to near zero to mitigate the effects of the COVID-19 pandemic.
During this period, the price of Bitcoin rose from around $3,850 in March 2020 to $69,000 in November 2021. This rise was driven by easy access to capital, increased risk appetite, and a weakened dollar.
Investors with a high risk appetite may turn to risky assets such as Bitcoin during periods when interest rates are low.
There is a different market in 2024
However, the economic situation in 2024 is different from the 2020-2021 period. Although the interest rate cut has revived interest in Bitcoin, the general conditions are quite different from previous years.
In contrast to the stimulus-filled environment of the pandemic, the Fed raised interest rates in 2022 and 2023 to combat inflation, and inflation pressures remain a concern.
Bitcoin’s price fell from its 2021 peak and lost momentum during the rate hike cycle that began in early 2022. With interest rates rising, investors have moved away from speculative assets like Bitcoin in favor of safer, interest-bearing investments.
Even though the Fed is moving towards interest rate cuts again, some analysts emphasize the need to be cautious.
One of the most important differences is that interest rates remain higher than during the pandemic despite the decision to cut. In addition, the number of institutional investors in the cryptocurrency market has increased and they may take a cautious approach.
Stay tuned for new information.