The FOMC meeting is just around the corner on September 17-18, 2024 and crypto is on high alert. During his Jackson Hole speech, Fed Chair Powell mentioned it might be time to change the Fed’s strategy. Many are expecting rate cuts, which could be big for the digital asset space.
What are Rate Cuts and How Do They Impact the Economy
A rate cut means lower borrowing costs for businesses and individuals. It can be an economic stimulus, more liquidity which has been good for riskier assets like cryptocurrencies. The current rates at 5.25%-5.50% are the highest in 23 years and the Fed is trying to combat inflation. But with inflation down from 7.1% to 2.5%, there’s a feeling they could be coming soon.
Analysts and retail investors are guessing how big the cuts will be and platforms like Polymarket are showing a 70% chance of a 25 basis point cut; some are even betting on more.
What Rate Cuts Mean for Crypto Prices
Lower rates have crypto investors feeling good. Historically cryptocurrencies like Bitcoin have done well when rates are cut. For example, during the Fed’s zero interest rate period from 2020-2022, Bitcoin went up 375%. Lower rates mean more liquidity which often means more demand for risk assets like digital currencies.
Bitcoin’s anti-inflation properties make it more attractive during periods of inflation fear which often comes with lower interest rates. As investors look to hedge against currency devaluation crypto may be a good alternative.
Bitcoin Halving and Seasonality
Another factor that could push up Bitcoin’s price is the recent halving in April 2024. Historically Bitcoin halvings where the rewards for mining new blocks are cut in half have led to big price increases within 6-18 months. No market prediction is foolproof but many see the halving as a positive for long-term price.
And September is usually a tough month for digital assets but market data shows prices bounce back in October. If history is any guide the rate cuts could coincide with this seasonal upswing and give more momentum to price recovery.
While we can’t predict the exact outcome of the FOMC meeting, the signs point to rate cuts that could be good for crypto. With Bitcoin’s halving and seasonality added to the mix investors are hopeful. Whatever the short-term impact, the long-term looks good for digital assets in a lower interest rate environment where more liquidity and inflation fear drives demand.
