This is How Bitcoin Met its First Fed Rate Cut
The first interest cut by the Federal Reserve (Fed), the U.S. central bank, in the Bitcoin’s history was a bit more complex than the market estimated and opinions still vary on the impact of this event.
As many expected, yesterday, the Fed indeed cut its main interest rate for the first time in a decade. Also as expected, it was lowered by 25 basis points, to 2%-2.5%. However, investors were disappointed by Jay Powell, the Fed chairman, when he explained that this move is a "mid-cycle adjustment to policy" rather than the start of a more aggressive cycle of monetary easing.
"This meeting was far less finished than expected," reacted Mati Greenspan, senior analyst at the eToro trading platform.
Gold, the world’s traditional store-of-value asset, traded down by about 0.9% immediately following the announcement. As of press time Thursday morning in Europe, gold has continued lower and is currently trading about 1.5% below the level from before the Fed’s announcement. Meanwhile, the U.S. dollar also reacted by trading higher relative to most other fiat currencies, including the British pound, the euro, and the Japanese yen.
What about about bitcoin? Well, the number one cryptocurrency traded sideways. It notched lower around 2 PM US Eastern Time (18:00 UTC) on Wednesday after the announcement by the Fed. Then it went higher before correcting below USD 10,000 again.
However, the slight sell-off came after an earlier rally in the bitcoin price, bringing the digital asset up by more than 6% during the 24 hours leading up to the announcement. The price is still up by c. 2% in the past 24 hours (11:12 UTC).
In either case, the overarching theme of the reactions was that while bitcoin is scarce, fiat money can be printed in infinite amounts. When rates go down, many argue, saving dollars in the bank becomes a less attractive option compared to holding non-yielding assets like bitcoin and gold.
However, economist, trader Alex Krüger stressed that bitcoin saw a very minor increase in trading activity at the time of the FOMC (Federal Open Market Committee) statement.
“FOMC volatility hit the market the most starting 14:37 EST, during Powell's conference. $BTC did not even flinch then. That's how an uncorrelated asset for which monetary policy is a very minor driver trades. I'm surprised this is still the case, but it is. Theoretically, the more institutionalized class the asset class becomes, the more it will react to the Fed. Not there just yet,” he said.
However, this is not where discussions have ended:
I believe so.— Mati Greenspan (@MatiGreenspan) July 31, 2019
Lol pic is ironic, but you don’t really think that the rally is from the rate cut do you? I hope you don’t interpret this from that.— Nick Core 🏆 (@Crypto_Core) July 31, 2019
Fundstrat needs some real technical anaylsts if so. pic.twitter.com/4SMcgmw3Ml
The next FOMC meeting is scheduled for September 17-18.
Meanwhile, Global Macro Investor founder Raoul Pal, while discussing risks in the global markets, said that "Bitcoin is part of this whole macro equation for me and is ready to soon start completing the wedge pattern for the next break higher... this is a good point to accumulate more."