Speaking at the Jackson Hole annual conference, US Federal Reserve Chairman Jerome Powell sent the clearest signal yet that a rate cut is imminent.

Bitcoin price surged above $64,000 on the news, with analysts predicting the rally will continue as the Fed begins to lower interest rates.

Leena ElDeeb, a researcher at 21Shares, said that previous interest rate cuts have facilitated the growth of digital asset prices. Investors, with access to cheaper loans, often pour money into riskier assets. In a statement, ElDeeb gave a specific example of a rate cut at the beginning of the COVID-19 pandemic:

“In March 2020, when the Fed cut interest rates by 150 basis points (bps) to near zero, the total crypto market capitalization increased by about 450% by the end of the year, while the price of Bitcoin increased by 200% during the same period.”

ElDeeb also emphasized that while past performance is not a guarantee of future results, the March 2020 rate cut can be a basis for comparison and predicting the possible effects of the upcoming rate cut on the crypto market.

Table showing current interest rates. Source: Fed

M2 Money Supply as a Market Indicator

ElDeeb also pointed out that fluctuations in the M2 money supply – a measure of the total amount of money in circulation in the global economy – could be a factor driving the Bitcoin boom.

ElDeeb noted that Bitcoin prices typically bottom out a few months before M2 money supply “bottoms out,” after which prices typically surge. This sharp price increase typically outpaces liquidity growth before correcting back in what is known as a “mid-cycle correction.”

The analyst also believes that Bitcoin ETFs could be a “key catalyst” driving price growth in the M2 money supply cycle.

Institutional Interest in Digital Asset Investment Remains Strong

Despite $528 million in outflows from digital asset investment products during the week of August 3, institutional interest in digital asset investing remains strong, as evidenced by strong inflows into BlackRock’s iShares Bitcoin Trust ETF and Fidelity’s Wise Origin Bitcoin Fund, which saw $20.3 million and $61.3 million, respectively.

Weekly institutional inflows into digital asset investment vehicles | Source: CoinShares

This strong interest is also reinforced by investment advisors increasing their exposure to Bitcoin ETFs in the second quarter of 2024.

Source: https://tapchibitcoin.io/fed-cat-reduces-yield-before-the-day-often-activates-the-crypto-market-increases-price.html