Crypto Sector Eyes the Fed: Will Interest Rate Cuts Ignite the Next Bitcoin Surge?

On Wednesday, September 18th, the US Federal Reserve will discuss possible control of the key interest rate. Such a step could be good for the price development of Bitcoin (BTC). But the situation also brings with it uncertainties.

Bitcoin (BTC) was quoted at times above $60,000 over the weekend, for the first time this September. Observers attribute the development to cautious optimism ahead of the meeting of the US Federal Reserve, which could cut the key interest rate on Wednesday. From 2020 to 2022, the key interest rate in the USA remained unchanged and has since been steadily increased until today.

With a current level of 5.5 percent, US monetary policy has responded to stubborn inflation – but at the same time created a monetary policy environment in which risky asset classes such as Bitcoin struggle because investors can also earn interest on their capital easily and with little risk.

In the EU, the ECB has already begun to lower the key interest rate, which was repeatedly raised after the corona pandemic, and the central banks of Canada and Great Britain have also initiated a turnaround. Forecasts agree that the FED will now follow suit. But will this also translate into investors’ willingness to shift funds towards Bitcoin? This may depend on how high the interest rate cut is.

The CME Group’s sentiment barometer expects a significant step of minus 0.5 percent in the key interest rate by a narrow majority, but “only” minus 0.25 percent is also considered possible. Bitcoin has to compete with asset classes such as stocks or gold, which also react sensitively to the US key interest rate.

Two observations are interesting here: Since the beginning of the year, Bitcoin has been able to beat the gains on the stock markets and gold with a gain of around 40 percent; with a gain of 120 percent over the last 12 months, BTC is in a league of its own anyway. But if you turn back the clock to 2020/1, when Bitcoin repeatedly traded above $60,000 and set records, the comparison looks different. The price of gold and the stock markets have since risen to new highs, while Bitcoin is more notable for its recurring volatility.

Conclusion: Bitcoin and the Fed – a strange couple

The analysts at Steno Research remind us that Bitcoin has only experienced one phase in its recent history in which the Fed gradually lowered the key interest rate – and that was in 2019/20. At that time, the price of Bitcoin benefited moderately positively.

A BTC rally only started when Covid aid money was distributed. It seems as if the leading crypto currency Bitcoin is encountering markets that are still gaining experience with the connections between the BTC price and the Fed’s interest rate decisions.

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(Featured image by Traxer via Unsplash)

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