How Fed Rate Cuts Impact Bitcoin and Other Cryptocurrencies?

Oct 31, 2019
11:10
2 min reading

Choise.com team

The world of traditional finance becomes weary with each day as the global economy stagnates to a level that could cause a new recession. Combating the instability, the U.S. Federal Reserve has cut interest rates two times this year, with one more incoming cut by the end of the year.

While the previous cuts have not had a significant impact on the crypto market, a rise in fear that the Federal Reserve is unable to put a stop to the crisis may result in people placing their savings in a digital store of value asset such as Bitcoin.

Following the news that the nation’s central bank reduced the benchmark federal funds rate by a one-quarter point, in the range between 1.5% and 1.75%, the chairman of the Federal Reserve Jerome Powell stated that a new rate cut is entirely possible if optimism continues to falter.

Traditional markets such as American stocks were certainly affected by the chairman’s announcement, as the S&P 500 rose by 0.3%. However, the cryptocurrency market did not react to the news.

At the time of writing, Bitcoin experiences high levels of volatility as the asset struggles to keep a stable support level at $9,000. If the market is incapable of pushing Bitcoin beyond $10,000 in the meantime, we may see levels of support that we have previously seen in the last couple of months.

Despite the problems that the market is facing, external events such as the possible rate cut may add fuel to Bitcoin. While some hold the view that the entire crypto sector would collapse in the case of a recession, as people would not hold their savings in speculative assets during a time of instability, others believe that the event would result in a massive number of people using Bitcoin as a store-of-value asset. Both outcomes could happen but there is no definite answer to this.

According to the CIO of Ikigai Asset Management Travis Kling, the decisions made by the traditional financial market set a bullish tone for Bitcoin, as the entire world of cryptocurrencies is not controlled by any entity. Decentralization presents one of the fundamental aspects of cryptocurrencies, as the feature forces all participants in a blockchain network to trust each other, instead of relying on a third-party that may not always have the best interests.

Economic Recession as a spark for the next bull run?

The upcoming recession has been discussed for the previous few years as an event that will certainly happen during the next decade. The improper management of the global economic system by banks is exactly what turns cryptocurrency investors into crypto enthusiasts. In the case that 2008 repeats, the adoption of cryptocurrencies would increase as people would start to realize that centralized systems can no longer be trusted.

If a recession were to occur in 2020, it would perfectly coincide with Bitcoin’s reward halving event which will happen in May 2020. Both events would set an extremely bullish tone for Bitcoin and the entire market, as a significant amount of money would start to flow into the market. Even if a recession does not hit the global economy soon, Bitcoin will still reach a bull run as the cyclic state of the market indicates that a price surge is bound to happen after the halving event.