Cryptocurrency investment products have seen significant inflows following the US Federal Reserve’s decision to cut interest rates, according to crypto investment firm CoinShares.
Digital asset investment products recorded their second consecutive week of inflows during the week of September 15-21, totaling $321 million. Weekly new inflows were down slightly from the previous week, reaching $436 million.
This growth may have stemmed from the Federal Open Market Committee’s (FOMC) decision to cut interest rates by 50 basis points (bp), CoinShares said in its latest weekly digital asset fund inflows report released on September 23.
Bitcoin and Ethereum Products: $284 million inflows and $29 million outflows
According to CoinShares, Bitcoin (BTC)-based investment products were the main focus last week, with $284 million in inflows. The report notes that recent BTC price moves have driven inflows into short-term Bitcoin investment products, totaling $5.1 million.
Ethereum, on the other hand, remains an “outlier,” CoinShares noted, as Ether (ETH)-based investment products saw outflows for the fifth consecutive week, totaling $29 million last week.
According to CoinShares analysis, the repeated outflows from ETH are due to continuous outflows from the Grayscale Ethereum Trust (ETHE) and insufficient inflows from newly issued exchange-traded funds.
Additionally, CoinShares also noted that Solana (SOL) investment products continue to see small but steady weekly inflows, totaling $3.2 million last week.
Impact of 50bp rate cut on markets
The US Federal Reserve released a FOMC statement on September 18, officially announcing the Board of Governors' decision to cut interest rates by 50 basis points. This decision marked the first time the US has reduced borrowing costs since March 2020, when the Fed cut interest rates due to the COVID-19 pandemic outbreak.
According to CoinShares, the rate cuts prompted a positive response in the cryptocurrency market, with total assets under management increasing by 9%. Total investment product volume also increased by 9% compared to the previous week, reaching $9.5 billion, the company said.
While Bitcoin investment products tended to be positive amid the 50 bp cut, some analysts actually predicted the opposite.
“Historical data shows that BTC and other risk assets have performed strongly in non-recessionary rate cutting cycles,” Bybit and BlockScholes revealed in a joint report on September 18. The analysts added:
“However, aggressive rate cuts during recessions often lead to negative market outcomes […] These developments have put the derivatives market on alert, with significant volatility premiums assigned to BTC options expiring in late 2024 and early 2025.”
BitMEX co-founder Arthur Hayes predicted that markets will crash shortly after the Fed's rate cut, criticizing the US central bank for cutting rates amid increased USD issuance and increased government spending.
Following the rate cut, investors also increased their purchases of gold, with prices continuously hitting new record highs.
On September 23, spot gold prices hit a new high of $2,629 per ounce, after rising more than 5% over the past two weeks.
According to Bas Kooijman, CEO and asset manager at DHF Capital, the 50bp rate cut could help prolong the gold price rally, which could continue to hit new records thanks to other supporting factors.
“This decision marks the start of a long-awaited rate-cutting cycle and could boost demand for assets such as gold and other safe-haven assets,” Kooijman said. He added that the size of the cut “also opens the door for more aggressive action in the coming months.” He added:
“In this regard, the Federal Reserve’s interest rate projections suggest a sharper decline in interest rates than the central bank’s previous forecasts. This trajectory could further underpin gains in gold prices.”
