Bitcoin’s value proposition was purportedly just validated with news that the Federal Reserve, the United States’ monetary authority, would be cutting its policy interest rate… again.
It is important to point out, however, that the price of the cryptocurrency hasn’t immediately reacted to this news. Stocks, however, have, with companies’ shares rallying by around 0.5% after the announcement.
Fed Cuts Rates in Move Benefiting Bitcoin
On Wednesday, Jerome Powell, the Chairman of the Federal Reserve, revealed that the entity’s Federal Open Market Committee — the body responsible for altering the interest rate to improve the economy — has lowered its benchmark funds rate by 0.25% (25 basis points) 5o a range of 1.5% to 1.75%. This is the Federal Reserve’s third cut this year.
While expected, it is believed that dropping interest rates, which equate to liquidity injections into financial markets, benefit the largely “risk-on” Bitcoin, along with the U.S. market. Speaking to Fox Business earlier this year, known cryptocurrency analyst Tom Lee said the following on rate cuts:
“Bitcoin’s becoming increasingly a macrohedge for investors against things that could go wrong. Rate cuts are adding liquidity. Liquidity is pushing money into all these risk assets and also hedges, which is helping Bitcoin.”
After President Donald Trump called for the nation’s central bank to cut rates earlier this year, Dan Tapiero argued that rate cuts are de-facto debasement (inflation) of the U.S. dollar. He thus claimed that gold and Bitcoin should benefit in the longer run.
As Travis Kling, the CIO of Ikigai Asset Management, pointed out in a recent tweet, Bitcoin, unlike the U.S. dollar, is a “non-sovereign, hardcapped supply, global, immutable, decentralized, digital store of value.”
Tomorrow, the Fed will:
– Buy ~$2bn of T-bills permanently
– Buy up to $120bn of Treasuries & MBS overnight
– Cut the Fed Funds Rate 25bps for the 3rd consecutive time
Bitcoin is a non-sovereign, hardcapped supply, global, immutable, decentralized, digital store of value.
— Travis Kling (@Travis_Kling) October 30, 2019
Negative Interest Rates are Better
Although the U.S. is still far away from having negative interest rates, some believe it is only a matter of time before this macroeconomic trend hits Americans.
Alan Greenspan, the former chairman of the Federal Reserve, argued that it won’t be long before the policy interest rate in the U.S. goes into the negative for the first time ever. Greenspan, in fact, called it “only a matter of time” before this unorthodox monetary policy makes a cameo in American markets.
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