FED Cuts Interest Rate: Will Bitcoin and Altcoins Surge?
đ° The US Federal Reserve has reduced its benchmark interest rate by 50 basis points, from 5.5% to 5%, marking the first cut since 2020. This rate change can influence Bitcoin and other cryptocurrencies in several ways:
1. Increased demand for risky assets:
Lower interest rates make traditional investments like bonds and bank deposits less attractive. Investors may seek higher returns elsewhere, including cryptocurrencies like Bitcoin, potentially driving up demand and prices.
2. Weaker dollar:
A rate cut can weaken the US dollar as foreign investors might shift to other currencies or assets. As the dollar declines, Bitcoin could be seen as a hedge to preserve wealth, particularly if viewed as "digital gold." This perception could boost Bitcoin buying and raise its price.
3. Inflation expectations:
Lower interest rates could lead to inflation. During inflationary periods, Bitcoin is often regarded as a "safe haven asset" due to its limited supply. Investors may turn to Bitcoin to safeguard their savings from currency depreciation, further increasing demand.
4. Increased liquidity:
Cheaper borrowing can lead to more liquidity in the market. With more available funds, investors may allocate some of this capital to cryptocurrencies, potentially pushing Bitcoinâs price higher.
5. High volatility:
Although a rate cut could provide favorable conditions for Bitcoin's growth, it remains a highly volatile asset. Even with increased investment, its price can still experience large fluctuations depending on market sentiment and external factors.
A rate cut may encourage investors to consider Bitcoin as an alternative asset, especially if the dollar weakens or inflation fears rise. However, itâs important to remember that Bitcoin remains a risky and highly volatile investment.