Crypto Market Reacts Positively to Federal Rate Cuts

The cryptocurrency market has recently been flooded with enthusiasm after the new rate cut by the Federal Reserve. A cut by 50 basis points sets the ground for new rounds of investment, especially in speculative assets like Bitcoin and other digital currencies. This shift has already resulted in an increase in prices, with most of the leading cryptocurrencies, such as BTC, Ethereum, and Solana, registering significant hikes. As interest rates decrease and the M2 money supply increases, traders return to the market expecting more upward movement. Now, let us describe how these economic changes influence the development of the crypto world.

Crypto Market Reaction After Fed Rate Cut

After the FOMC made a 50 basis point cut in the interest rate, the entire crypto market, specifically Bitcoin, went into a hype. The market value of Bitcoin prior to the announcement stood at $60,463 and has since appreciated to above $62,000, marking a growth of more than 2.5%. This had squeezed short BTC positions across the exchange order books when price rose above $62,000.

Other digital currencies were also on the rise, with Ethereum increasing in price by between 1% to 3%, Solana by 6%, Ripple (XRP), Binance (BNB), and Cardano (ADA) by around 4.5%. Furthermore, memecoins like Dogecoin (DOGE) and Shiba Inu (SHIB) rose more than 4%. 

Bitcoin Eyes $100K After Fed Rate Cut Sends Prices Past $62K

Lower Interest Rate and Rising M2 Liquidity Boosts BTC 

The Federal rate cut by 0.50% has made borrowing money from banks much easier and cheaper. When the interest rate becomes lower, businessmen and individuals are likely to take loans and invest in various projects. Furthermore, lower interest rates also make traditional saving options like bonds and savings accounts less attractive, leading investors to try riskier assets for better profits. 

It also results in more money circulation within the market, thus boosting economic growth. This leads to an increase in the level of M2 money supply, as indicated in the figure above on the right-hand side. M2 means the overall amount of money in the economy, and when this expands, it means there is more money in circulation and better buying power. The rise in M2 liquidity coupled with lower rate cuts gives traders a favorable environment to trade in risky assets such as cryptocurrencies. The low interest rate coupled with M2 liquidity means more purchasing power and a new high in BTC market sentiment.

Rate Cut Results in Surging Bitcoin Open Interest

Bitcoin’s Open Interest indicates the number of outstanding derivative contracts, such as futures and options. An increase in open interest often suggests that many traders and investors are becoming involved, reflecting higher trading activity, especially with a bullish outlook. In this scenario, where the Federal Reserve’s recent rate is reduced by 40 basis points (BPS), Bitcoin Open Interest has been rising steadily, reflecting growing bullish momentum. Furthermore, using the reduction in borrowing costs as a chance, many traders are borrowing money and are going long on Bitcoin, anticipating a bullish trend.      

Increased Total Market Capitalization in Crypto 

The crypto market is experiencing a rebound, with the total market capitalization rising to $2.24 trillion, indicating an increase of 1.8% in just 24 hours. This surge reflects a renewed interest in investor confidence and an increase in prices across the crypto space. A major factor behind this rebound is the fed rate cuts. The increase in spending power that comes with reducing interest rates stimulates them to invest in riskier assets like cryptocurrencies. As a result, with the introduction of a large amount of money into various cryptocurrencies, the total market capitalization of the entire crypto market rises.  

Fed Rate Cut Could be Politically Motivated

Arthur Hayes, the co-founder and former CEO of BitMEX, said in an interview at Token2049 in Singapore that the Fed’s recent rate cut was politically motivated and could increase inflation. He added that it might be in the political interests of presidential candidate Kamala Harris. 

I have a macro view that Jerome Powell [Federal Reserve chair] and Janet Yellen [Treasury secretary] want to juice financial markets to help Kamala Harris win the election.

Polymarket Users Wager on Additional Fed Rate Reductions

On Polymarket, the world’s largest prediction market, there is a wager about the possibility of a further rate cut. Traders are confident that there will be additional Fed rate cuts before the end of this year. According to Polymarket data, most traders predict four rate cuts at 100 basis points and five rate cuts at 125 basis points for a chance of 37% and 39%, respectively. A smaller percentage of traders, about 16%, predict six or more rate cuts at 150+ basis points. Furthermore, traders who are betting on two rate cuts at 50 basis points and three rate cuts at 75 basis points only account for 2% and 7%. This prediction has an estimated end date of December 31, 2024, and the winner could get $11,048,298.    

Trump Regains Lead Over Harris in Polymarket’s Election Odds

Conclusion

The most recent outcome of the Fed rate cut has created a massive change in the cryptocurrency market in terms of investor confidence and market capitalization. This can be attributed to lower interest rates and higher M2 liquidity, which have now made borrowing easier, thus creating more capital for riskier assets such as Bitcoin and other cryptocurrencies. This surge is represented by the growth of Bitcoin Open Interest and the overall crypto market capitalization, which stands above $2.24 trillion. Moreover, expectations for the subsequent rate cut remain high, with most traders expecting the cuts during the current year. These developments underscore monetary policy’s increased role in determining the crypto market’s future.