The Federal Reserve is going to cut interest rates. Bitcoin is likely to benefit greatly from a change in policy. The picture is very bleak for Ethereum and Solana.
After 14 months of keeping federal interest rates in the 5.25% to 5.5% range, the Federal Reserve is finally set to cut them.
The US central bank will announce the size of the cut at its Federal Open Market Committee meeting on Wednesday afternoon. market Assigning 65% odds of a 0.5% cut and a 35% chance of a standard 0.25% move.
For crypto, the rate cut is good news.
High interest rates encourage investors to keep their money in risk-free Treasury bonds to earn attractive yields.
Low rates, meanwhile, force investors to look for returns in risk-on assets like tech stocks and cryptocurrencies.
But do some coins outperform others?
Wikipedia
Rate cuts benefit Bitcoin for a few different reasons. First: Bitcoin is particularly sensitive to new money flooding the economy.
“Bitcoin Price Shown A strong positive correlation Since its inception with global liquidity,” said Brian Rudick, director of research at crypto trading firm GSR. DL News.
Join the community to get our latest articles and updates
There's also the fact that Bitcoin's hard cap on supply makes it the digital equivalent of gold in many investors' eyes.
And inflation may return soon as the Fed moves further with additional rate cuts. FedWatch data shows Traders give 60% odds that rates will drop at least 1.25% by December.
“I believe the next shock will be inflation because the underlying conditions have not changed,” said Vincent Delouard, global macro director for financial services company StoneX. has been posted On X.
“If anything, the Covid experience will probably set precedents for future policy decisions,” added Deluard. “Financial Repression Saved US, European and Japanese Governments $8 Trillion Over the Last Decade: Why Should Governments and Central Banks Stop Here?”
Government spending and inflation will strengthen both Bitcoin and gold, says Quinn Thompson, founder of crypto hedge fund Lecker Capital. DL News.
“I think inflation will become problematic again, and that will eventually cause the Fed to stop cutting,” Thompson said. “But based on their last hiking cycle, they are waiting as long as possible to raise rates again because of inflation.”
Ethereum and Solana
It's hard to imagine what will happen to the rest of the crypto ecosystem.
As the largest cryptocurrency by value, Bitcoin is the leader of the pack. If Bitcoin rises, other cryptocurrencies rise – and if it falls, they fall.
In that sense, what is good for Bitcoin is definitely better for Ethereum and Solana.
“Excluding token-specific drivers, the majors move in line with their beta, with Solana moving the most, followed by Ethereum, then Bitcoin,” Rudick said.
But Thompson noted a big difference between the three currencies: Bitcoin and Ethereum now have US spot exchange-traded funds, while Solana does not. And Ethereum hasn't seen the same kind of demand for its ETFs as Bitcoin.
“Right now the marginal buyer of crypto is the ETF buyer, right?” Thompson said. “ETF inflows were negative for Ethereum and positive for Bitcoin, and it was the number one contributor of capital throughout the year.”
“It's much easier to own more risky assets during high momentum time periods than when everything else is struggling to break even,” Thompson said.
In other words, Fed rate cuts could end up boosting Ethereum and Solana — but only if the Bitcoin market can maintain enough of an uptrend to heat up again.
Tom Carreras writes about markets for News. Got a tip about Bitcoin and the Federal Reserve? arrive at [email protected]
Related TopicsFederal ReserveBitcoinTheriumSolana
