Fed Cuts Interest Rate, Bitcoin (BTC) May Get a Boost

The US Federal Reserve held a notable streak of rate cuts in 2008, keeping up a decade of low-rate monetary policy.

The USFederal Reservecut the interest rate by 0.25 percentage points, fro 2.5% to 2.25%, in a bid to fight economic headwinds and potential setbacks. The decision to lower the rate is the first one in years, as the rate climbed from rock-bottom levels of 0.25%.

Bitcoin (BTC), created in early 2009, has existed in a decade of unprecedented quantitative easing - and the recent rise of rates toward 2.5% has turned the tides somewhat. But a new rate cut may add a general boost to all assets.

The news of an interest rate decrease caused a spike in gold prices above $1,420. While gold is a much less volatile asset, it is seen as a proxy for BTC sentiment. For those who see BTC as sound money, a lowered interest rate is a sign that the central bank may allow inflation. Thus, a return to sound money would be the logical decision.

Following the news of the Fed interest rate correction, BTC prices moved up, boosted by renewed optimism. It is uncertain if the price effect is entirely due to the Fed decision, but BTC once again bounced off lows and recovered close to the $10,000 level.

On Wednesday, the asset traded around $9,999.33 as of 9:34 UTC, though on thinning volumes of around $16 billion’s equivalent.

https://twitter.com/acwilcox/status/1156601556327968768

However, it must be remembered that previous BTC rallies happened during conditions of much lower interest rates. Still, the economic recovery in the years following the 2008 crisis had to gain speed. BTC ended up setting its all-time record in 2017, riding upward along with all other asset types, especially stocks.

The move on the side of the Fed arrives close to the Bitcoin halving - meaning the coin creation and effective inflation on the Bitcoin network will tend lower, while the potential for inflation due to low interest rates is higher. This is a factor that may make BTC more attractive. BTC allows for “sound money”, while the Fed can increase or decrease the money supply based on economic measurements, choosing to encourage or rein in investment and spending.