Everyone is talking about interest rate decision and some of you might be confused what is interest rate decision and if it's bullish or bearish for crypto. No worries i got you covered.
In this article we will discuss what impact rate cuts can have on crypto market.
Before we go straight into how interest rates impact the market let's first discuss what interest rate is.
Interest Rate
The Federal Reserve interest rate is the rate at which depository institutions, such as banks, lend and borrow money from the Federal Reserve (the central bank of the United States). It is a key monetary policy tool used by the Federal Reserve to control the supply of money and influence economic growth and inflation. Changes in the interest rate set by the Federal Reserve can impact borrowing costs for businesses and consumers, which, in turn, can affect the value and performance of stocks, commodities, and cryptocurrencies.
It's also have some more affects but we're in financial markets so we'll just be focusing on it.
Why Rate cut is needed?
FED cuts the rate for two reasons
When economy is showing the sign of weakness and Inflation and employment is not in control.
When inflation is in control but the rates are too high.
Some of you may remember when the FED and most of the world banks lowered the interest rates when COVID 2019 came. Unemployment and inflation causes FED to change the interest rates. When COVID19 came so many were unemployed, losing their jobs and increasing prices of everyday goods the FED decided to cut the rates down to control the economic situation the country was facing.
When FED lowers the interest rates it helps to stimulate economic growth in a couple of ways.
Lower interest rates make it cheaper for people and businesses to borrow money
Cutting interest rates make it less profitable to keep money in the bank accounts.
When FED will start cutting the rates individuals will prefer to take their money out of banks and invest or spend that money into Commodities like GOLD, Silver or some decide to invest it into properties, stocks and crypto.
i mean it does make sense who would prefer to get less interest rates on their money by keeping into their bank accounts so instead they take the money out and invest it on somewhere else.
Rates cut is typically good news for crypto, stocks and other commodities. This was also the reason everything popped up when the FED cut interest rates after COVID19.
Let me take you back in March, 2020 when FED decided to cut the rates down.
Above picture is when the FED has a big rate cut after the COVID. it was a 1.00% cut on march 15,2020.
Above picture is the Bitcoin chart and you can clearly see how the rate cut marked bitcoin’s bottom and the price of bitcoin at that time was around $5000 and then we saw it run to $69,000.
Clearly a sign that people were more interested in investing than keeping their money in banks.
S & P 500 after interest rate cut 👇
Dow jones bottom after interest rate cut 👇
NASDAQ Bottom after interest rate cut 👇
All these above pictures are proof of how lower interest rates can have a great impact on the market movements. People were getting less interest rates than they were getting before on their savings and they decided to take their money out and put it into crypto, stocks or whatever market they would like to.
Will 2024 rate cuts trigger the Bull market again ?
Well looking at the previous data i shared with you above the rate cut was the reason we saw a great bull market. We can expect it again but remember that the rumors of FED cutting the rate is already getting priced in. When market reacts to something before it actually happens it mostly ends up a "Sell the news event"
Also remember that the situation in 2020 and the current situation is totally different. In 2020 everything was unstable and the interest rate was almost zero and now the inflation is somehow in control and the interest rate is sitting at 5.25%. So before you take decisions based on just previous data it will more better if you just wait and see what the market will do when the FED will finally cut the rates.
Overall rate cut is bullish for crypto but it's always depends on the market makers which way they want to run the market for the short term.
it can be a "Buy the rumors sell the news" type of thing but in the macro picture rate cut is bullish.
Use this in information as your education only not a financial advice.
I hope you learned something from it.
