Fed Rate Cut Sparks Bitcoin Surge, China Joins the Action

• Central banks turn on the taps.
• The recent Fed rate cut saw an outsized Bitcoin performance.
• China joins in with stimulus measures.

A brighter outlook is emerging as central banks transition from tightening to easing policies. This pivot offers a lifeline to struggling consumers and investors, as the focus now shifts towards boosting economic activity.

While multiple central banks have recently cut interest rates, it was the Fed’s massive 50 basis point cut on September 18 that made the biggest splash for Bitcoin (BTC). In contrast, similar moves by the Bank of England (BoE,) the European Central Bank (ECB,) and more recently, the People’s Bank of China (PBoC) barely stirred the crypto market.

Fed Boosts Bitcoin 

The Fed cut rates by 50 basis points last Wednesday, officially ending its rate hike program that began in March 2022 to combat post-COVID inflation.

Data from Kaiko showed that the Fed’s rate cut triggered a significant 5.2% surge in Bitcoin’s price within 24 hours. In contrast, similar cuts from the BoE on August 1 and the ECB on June 6 produced far less impressive outcomes, resulting in Bitcoin declines of 6% and 4%, respectively, after those announcements.

Bitcoin response to central bank rate cuts, per Kaiko

Kaiko suggested that the strong BTC gains following the Fed’s decision are largely due to the dominance of USD-backed stablecoins, which now represent 91% of the stablecoin market. 

This stark contrast highlighted the limited influence of pound and euro-backed equivalents on Bitcoin’s performance.

As central banks pivot to quantitative easing, analysts anticipate a resurgence of risk-on sentiment, which could benefit assets like Bitcoin.

China Pivots Too

Hot on the heels of the Fed rate cut, the People’s Bank of China announced a substantial package of quantitative easing measures on Tuesday to both support its struggling economy, and improve consumer sentiment. 

Key measures include lowering the short-term seven-day reverse repo rate from 1.7% to 1.5% and reducing the reserve requirements for lenders by 0.5 percentage points. These actions are designed to provide much-needed liquidity to the banking system.

According to the Financial Times, these measures are expected to inject an additional RMB 1 trillion (approximately $142 billion) into the financial system, as Chinese policymakers work to reverse declining growth trends.

At the time of writing, Bitcoin is down 0.1% over the last 24 hours, suggesting that US monetary policy has a stronger influence on crypto markets than recent developments in China.

On the Flipside

• Gold, a risk-off asset, made another new ATH on September 24, suggesting a lack of confidence in central bank stimulus measures.
• Central banks are the biggest buyers of gold.
• Rate cuts signal underlying economic weakness.

Why This Matters

The Fed appears to have a stronger influence on Bitcoin, showing that crypto markets are more closely tied to US monetary policy than others.

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