Bitcoin traded just below its one-month high on Monday, extending last week’s gains in cryptocurrencies and risk assets including stocks following the U.S. Federal Reserve’s rate hike decision.
The Fed cut its benchmark interest rate by 50 basis points on Wednesday, beating economists’ expectations for a quarter-percentage-point cut. It also marked the first time the central bank has cut its rate in 2018. four years.
Cryptocurrency analysts welcomed the move as a positive catalyst for market activity, especially as Bitcoin, a key market indicator, has yet to regain its March all-time high of over $73,800 this year.
The asset is up 2% on the day to $64,000, its highest point since August 26, according to data from CoinGecko.
“Given that cryptocurrencies are fundamentally a risk asset class, we believe the shift to a lower interest rate regime represents a significant bullish catalyst,” said Matthew Graham, Managing Partner at Ryze Labs. “Over the past several years, cryptocurrency prices, including Bitcoin, have been driven by global macroeconomic conditions more than any other factor.”
In adjusting the federal funds rate, the Fed aims to manage inflation, promote employment and maintain economic stability. The central bank hopes to strike the right balance between overstimulating the economy, which would lead to another cycle of high inflation, and missing the mark by not cutting rates drastically.
As the US Fed begins its tapering cycle, Bank of Japan The Fed voted Friday to keep interest rates unchanged. At the same time, the Bank of England announced a pause in its rate-cutting policy, opting instead for a “gradual approach” after its first rate cut in August.
Central bank interest rate decisions influence liquidity and investor behavior, which impacts the amount of capital flowing into speculative assets like cryptocurrencies. Divergent policies, such as the Fed cutting rates while other banks hold or pause, create uncertainty that can cause volatility in the cryptocurrency market or a pause in price growth.
With much of the rate cut euphoria and speculation now behind us, cryptocurrency prices may be taking a “breathtaking breather,” QCP Capital wrote in a press release. note late Friday night.
The Singapore-based digital asset trading firm interpreted a recent drop in volatility in Bitcoin options contracts as the market’s response to the ongoing path “toward policy normalization.”
A decline in volatility typically reflects less extreme price movements and suggests that traders do not expect dramatic changes in the short term.
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