Typically, increased flows of new dollars aimed at lowering interest rates would boost the prices of stocks and fixed income bonds.

Since the inception of cryptocurrencies, the financial markets have found that this new asset class is particularly sensitive to interest rates and has an inverse correlation with them.

A recent report from Fidelity’s Active Investor Learning Center notes: “While central banks do not control cryptocurrencies, some cryptocurrency analysts have noted that the U.S. central bank may indirectly influence the price of cryptocurrencies.”

According to a report by SPGlobal, the daily three-month rolling correlation between interest rates and the crypto index has shown an inverse relationship 63% of the time since May 2017. This ratio has increased to 75% since May 2020.

China, Canada and South Africa set to cut interest rates

When the United States stopped directly converting dollars to gold in 1971 to prevent a large outflow of the precious metal from the economy, it created a foreign exchange market with freely floating exchange rates.

This has a direct impact on import and export profits and the trade balance between major international trading partners. As a result, the Fed's early rate cut has created conditions for China to cut interest rates.

Amid US policy support for China's interest rate cuts and the yuan's deflationary trend threatening to spiral, experts predict a change in monetary policy will soon come to China.

Bank of Canada Governor Tiff Macklem said in a recent interview that the country's central bank is ready to make larger interest rate cuts than it has made earlier this year.

Meanwhile, South African Rand watchers are expecting the country's Reserve Bank to announce an interest rate cut later this week.

‘Soft landing’ could boost ‘hard money’ like Bitcoin

While monetary engineers at the Fed and other central banks prepare to ease the economy into another soft landing, Bitcoin and other cryptocurrencies have responded with enthusiastic optimism.

Arthur Hayes, founder of BitMEX and an influential figure in the cryptocurrency space, recently said that he believes the Fed restarting its money printing presses with a new round of interest rate cuts will significantly boost Bitcoin prices.

He stressed that the impact of monetary policy on Bitcoin will be evident quickly and the results will be significant.

“They will ramp up the printing press and dramatically increase the money supply,” Hayes said. “That will lead to inflation, which may be bad for some businesses. But for a finite-supply asset like Bitcoin, it will be a lightning-speed flight to the moon!”

Hayes closed his short position on Bitcoin earlier this month and admitted that he only made a modest profit.


Source: https://tapchibitcoin.io/btc-price-increases-with-low-interest-rates-from-nhtw.html