In a recent conversation with The Block, Johns Hopkins University economist Steve Hanke shared his opinion on the potential impact of the expected U.S. Federal Reserve rate cut on the cryptocurrency sector. According to Hanke, the 25 basis point rate cut expected by many investors could eventually lead to a news sell-off for the cryptocurrency industry as a whole.
See also: A major collapse in Shiba Whale activity, and will prices follow?
He explained that the market has already assessed the potential for such a drop, and this has been factored into price movements in several investment markets. Indeed, after the official announcement of a rate cut, the market reaction may be less impressive and there could be a wave of #cryptocurrency sell-offs.
Hanke noted that unlike the more expected 25 basis point rate cut, a 50 basis point rate cut is not yet well understood by the market. So a 50 basis point rate cut could, contrary to expectations, give the market some momentum.
Inflation in the U. S. has started to decline, and Fed Chairman Jerome Powell said last month that the time has come for a rate cut. Interest rates are currently in the 5.25-5.50 percent range, the highest in 23 years. At the Federal Open Market Committee (FOMC), interest rates refer to changes in the federal funds rate, which the Fed raises or lowers mainly to stimulate economic growth and control inflation.
nTheoretically, a Fed rate cut could create a favorable environment for #cryptocurrencies . Lower interest rates would mean lower returns on traditional savings and fixed-income investments such as bonds, which would encourage risk-averse investors to turn to cryptocurrencies.
However, given the current market situation, predicting the market's reaction to a rate cut at this point is easier said than done. This is because the expected rate cut was one of the factors behind bitcoin's rise earlier this year, leading to speculation that the rate cut had already been factored in.
Read us at: Compass Investments