The post Digital Gold vs. Traditional Gold: Bitcoin’s Reaction to Interest Rate Cuts appeared first on Coinpedia Fintech News
The United States Federal Reserve’s recent decision to cut the interest rate has benefited Gold. It was expected, as it is natural for investors to opt for safer assets like Gold during periods of economic uncertainty. At the time Gold is enjoying the benefit of this volatile economic landscape, there are a few curious minds – most probably, crypto enthusiasts – who wonder whether the same advantage can be secured by Bitcoin. Such a curiosity stems from the fact that Bitcoin is often called ‘Digital Gold’. Time to start this exploration. Surely, we can find something interesting. Join!
Gold’s Surge: A Historical Parallel
CryptoQuant shares a set of data capable of proving the correlation between the US interest rate and the Gold price. It shows how the Gold price surged when the US Federal Reserve cut its interest rate in 2008. It highlights that at the time when the interest rate was reduced in 2008, the price of Gold was as low as $590 per ounce. As per CryptoQuant’s set of data, within four years of the 2008 Fed rate cut, the Gold price jumped to an enviable peak of $1,900. What CryptoQuant reveals is more than enough to prove that there is a strong correlation between the US interest rate cut and the Gold price.
So, whenever the US Fed announces an interest rate cut, we should expect a surge in the Gold price. In short, it confirms the general assumption that whenever there is financial uncertainty in the market, investors tend to migrate to safer assets like Gold.
Can Bitcoin Benefit from the 2024 Fed Rate Cut?
Like 2008, last month the US Federal Reserve announced an interest rate cut. This time also, as expected, the Gold price has responded optimistically. On the day the rate cut was announced, the price of Gold was under $2494. On September 26, it reached a yearly peak of $2660.6. Now, the price stands at $2649.8.
Though there are several differences between Gold and Bitcoin, there are many reasons that lead investors to compare Bitcoin with Gold. So, it is perfectly reasonable to analyse whether the Bitcoin market has seen a surge similar to Gold’s during this period.
In September, the Bitcoin market was largely bullish. At least a week before the big announcement made by the US Fed, buyers took control of the market. At that juncture, the global market was anticipating the Fed rate cut, as weeks before the move the Fed Chair had openly spoken about it.
Though a couple of days before the announcement, the market witnessed a few consecutive red candlesticks, just a day before the announcement buyer regained dominance. In a week after the announcement, the market reached a monthly peak of $65,903. Although yesterday, sellers made a strong attempt to pull the price down, today buyers successfully stopped the downward momentum and are pushing the price strongly upwards.
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In conclusion, although it is true that Bitcoin, due to its similarities with Gold, is popularly known as Digital Gold, and there are experts who are of the opinion that it is high time to start considering Bitcoin as a commodity like Gold, it remains sceptical whether Bitcoin, as a cryptocurrency, has gained as much trust as to negate the general perception of investors about the cryptocurrency asset category as risky.
