📰 The US Federal Reserve cut its benchmark interest rate by 50 basis points for the first time since 2020, from 5.5% to 5%.
When the Fed cuts interest rates, this could affect Bitcoin and other cryptocurrencies in several ways:
1. Increased demand for risky assets:
As interest rates fall, traditional investments like bank deposits or bonds offer less income. Investors start looking for better options and some may turn to cryptocurrencies like Bitcoin. This could lead to increased demand for Bitcoin and, as a result, its price.
2. The dollar is weakening:
Lower interest rates could weaken the dollar as foreign investors may choose to invest in other currencies or assets. If the dollar depreciates, Bitcoin could be seen as a way to preserve wealth, especially if it is seen as “digital gold.” This could also encourage people to buy Bitcoin, increasing its price.
3. Inflation expectations:
Interest rate cuts can accelerate inflation, and during times of inflationary pressure, Bitcoin is sometimes considered a “safe haven asset” because its supply is limited. People may start investing in Bitcoin to protect their savings from devaluation of national currencies, which could increase demand for the cryptocurrency.
4. Increase liquidity:
As money becomes cheaper, more free funds appear on the market. These funds can be redirected not only to traditional assets but also to cryptocurrencies. This creates an additional flow of money into the Bitcoin market, contributing to its growth.
5. High volatility:
While the rate cut may create a favorable environment for Bitcoin to rise, cryptocurrencies remain highly volatile assets. This means that even with new investment inflows, Bitcoin prices can still fluctuate wildly depending on market sentiment and external factors.
Therefore, interest rate cuts could push investors towards Bitcoin as an alternative asset, especially if the dollar weakens or inflation expectations begin to emerge.
However, it is important to remember that Bitcoin always comes with risks due to its high volatility.
📌 When the Fed lowers interest rates, money becomes cheaper for everyone and what usually happens is:
Right away:
1. Borrowing is getting cheaper: People and companies are borrowing more to buy homes, cars and businesses.
2. The economy is recovering: Increased consumer spending boosts economic growth.
3. Growth Stocks: Investors see growth potential in certain companies (stocks) and invest in them. It is important to understand that not all of them are growth stocks!
Afterward:
1. Inflation: More spending means higher prices for goods.
2. Business growth: Companies grow, creating new jobs.
3. The dollar is weakening: Fewer investors are investing in the dollar.
Long term:
1. Overheating Risk: Cheap money can lead to excessive debt.
2. Economic growth: All things being equal, the economy will continue to grow.
3. Simplified national debt: The state can easily manage debt with low interest rates.
Lowering interest rates will boost the economy, but it is important to avoid inflation and financial problems.
