The American Federal Open Market Committee (FOMC) is likely to make a decision today to initiate a series of interest rate cuts. According to Richard Teng, CEO of Binance, the world’s largest cryptocurrency exchange and leading blockchain ecosystem, such a change could significantly transform the economic situation and impact digital asset markets, which should benefit from this decision.
Teng believes that the predicted interest rate cuts will have a great impact on digital asset prices. Lower interest rates increase liquidity in the financial system, pushing demand for higher rate, more risky assets, including cryptocurrencies. For instance, Bitcoin (BTC) saw an increase of 375% between February 2020 and February 2022, a period when interest rates were close to zero.
“Furthermore, lower interest rates can fuel fears of inflation, forcing some investors to turn to cryptocurrencies in order to protect their purchasing power, and weaken the US dollar, making it more probable that investors will consider digital assets as an alternative form of value storage,” says Teng.
As Teng points out, Bitcoin and other digital assets possess unique features that may shape their prospects in the face of interest rate cuts. This includes the recent halving of Bitcoin mining rewards – an event that historically leads to price increases 6-18 months later.
“The availability of spot ETFs for Bitcoin and Ethereum can currently facilitate smoother shifts between stocks and cryptocurrencies, amplifying the potential impact of interest rate cuts on the cryptocurrency market. Furthermore, though September is typically a weak month for digital assets, prices often rebound in October and the anticipated rate cuts could provide an additional boost to such price recovery,” Teng comments.
The impact of the Fed’s interest rate cuts on the digital asset market is uncertain, but several indicators suggest that policy changes in September might be a golden opportunity for cryptocurrency investors. Lower borrowing costs and increased liquidity offer promising prospects for digital assets. Historical trends and unique factors specific to cryptocurrencies further reinforce optimism that these policy changes could catalyze growth, Binance’s representative concludes.
Source: https://managerplus.pl/potencjalne-skutki-ciec-stop-przez-fed-dla-rynku-kryptowalut-53524
