Bitcoin rallies alongside equities as markets anticipate an ECB rate cut this week

The uptick comes as borrowers in the eurozone are expected to receive relief from high interest rates this week. Following recent declines in inflation, the European Central Bank is forecasted to lower its benchmark rates on Thursday.

Money markets indicate a 93% chance of an ECB rate cut at this week's monetary policy meeting. The ECB is likely to reduce the rate on its deposit facility, which banks use to make overnight deposits with the Eurosystem, to 3.75%, down from the current record high of 4%.

Bitcoin could benefit from increased market liquidity

Speaking to The Block, Bitfinex Head of Derivatives Jag Kooner said that historically bitcoin has shown a mixed correlation with equities. "During economic stress, bitcoin often mirrors stock market trends as investors liquidate assets, in a stimulus-driven environment with lower rates, bitcoin may benefit alongside equities due to increased liquidity," Kooner said.

Kooner added that bitcoin is also seen as a hedge against inflation. If the ECB rate cut raises inflation expectations, the digital asset might attract more investment as it is seen as "digital gold."

"Bitcoin might follow equities if it continues to be treated as a risk asset, benefiting from the same liquidity inflows," Kooner said.

ECB rate decision impact could be limited

YouHodler Chief of Markets Ruslan Lienkha told The Block that he doesn't see the ECB decision as significantly impacting bitcoin's price. "Expectations of a rate cut in the EU are not reflected in bitcoin’s price movements mostly because the European crypto market is relatively small," he said.

Lienkha added that bitcoin mostly correlates with U.S. equity markets in the medium to long term, although he acknowledged that some divergence is possible in the short term.

"Therefore, a rate cut may stimulate the European equity market to grow, creating a positive sentiment in the U.S. market, and then indirectly supporting crypto prices in the near term," Ruslan said.