Fed Rate Cut Fuel On The Fire For Bitcoin Price Momentum

Markets have received a further boost after the US Federal Reserve announced that it would cut its benchmark fed funds rate by 25 basis points to 4.75%-4.5%. This is another step towards loosening the country’s monetary policy. The cut was in line with market expectations and did not have as much of an impact on price as the Trump win.

Thursday’s decision follows a key decision made at the last Federal Reserve meeting. On September 18th, 2024, the US Federal Reserve announced that it would slash rates for the first time in four years announcing a 50 basis point reduction.

Preceding these cuts US interest rates had been high with the Fed target rate sitting above 5% since May 2023 to cool surging post-pandemic inflation. Lower interest rates make capital cheaper and boost the money supply. It shifts investor perspectives towards encouraging investment and consumption instead of saving.

In a forecast published last week, global banking giant JP Morgan Chase says investors should pay attention to Gold and Bitcoin after Trump’s victory and a potentially weaker US dollar because of looser monetary policy. The bank explains— “Retail investors appear to be embracing the ‘debasement trade’ in an even stronger manner by buying Bitcoin and gold ETFs.”

In a debasement trade, the goal is to preserve or grow wealth by taking advantage. In this case, if US inflation were to pick up again because interest rates are starting to drop, then the market is backing gold and Bitcoin because of their hard money characteristics to succeed in this environment.

Total daily inflows of US spot Bitcoin ETFs spiked sharply on November 7th post-Trump’s election win and recorded a staggering ~US$1.38 billion inflow. This was the biggest day for net BTC ETF inflows in 2024.