Following the FED announcement of a 25bps rate cut, the price of Bitcoin and the crypto market as a whole has undergone a tremendous hike. Bitcoin has hit its new all-time high this week. And now with the reduced rates, it is expected to increase further in the coming days. The main aim behind this is to maintain focus on the low inflation in the market, with Chair Powell confirming that Trump’s victory in the election won’t be in any way affecting this decision.
Basis Points, also known as bps or bps, is a unit of measure that is widely used in finance for describing the change in the percentage of various financial instruments’ value. One basic point is equivalent to 1/100th of a percent. In simple terms, basis points refer to changes in interest rates and bond yields.
Investor Sentiment On The BPS Cut
Interest rates are one of the biggest factors that the Feds use to directly influence the market sentiment. Since the rates have gone down, people can now borrow money at lower interest rates. On the contrary, if the situation were in reverse, the price of various financial services like credits become more expensive. Even though this helps in fighting inflation, it has its share of disadvantages.
In the last tightening cycle, the Fed had raised interest rates by almost 11 times. This has resulted in the falling price of various cryptocurrencies and markets as a whole. It was mainly due to the decrease in the price value of the coins.
As the Fed cut the bps rate, we can expect an increase in the price of various coins in the crypto market. This is going to give huge opportunities to investors. As this law comes into effect and the price shoots up, they can sell their assets to gain maximum profit in these times.
Impact of Interest Cut On Bitcoin & Market
As of this Thursday, the Fed has cut the basic points by 25. This was done mainly to counter inflation. Now, the current benchmark rate stands at 4.75%. This decrease in the increase rate has highly impacted the crypto market with various cryptocurrencies soaring in the market. This is especially the case of Bitcoin. The coin is currently soaring in $75K, flirting with the $76K mark.
The main reason behind this phenomenon is that when the Fed cut the rates, the investors started in on greater risk assets. If the market trends continue to be in favor of Bitcoin, we can see it gaining even higher momentum in the coming days. It should also be noted that various other cryptos also rallied after BTC. For instance, Ethereum and Solana had a rise of 7.3% and 3.5% respectively. This is just the tip of the iceberg.
As various coins rallied after the Trump election, the rate cut was like adding fuel to an already burning fire. This has resulted in the global crypto market cap increasing by billions in just the last weeks. At the start of this November, the market cap was $2.3 trillion. Now, it is currently at a peak of $2.53T. If this trend continues, we can expect a lot of increase in the coming days as well.
CONS of the Interest Cut
In the above sections, we saw how decreasing interest rates made the crypto market shoot up as a whole. Now, let’s take a look at how it can negatively impact the
- Riskier assets: Low interest rates can make investors take on reckless decisions. This is mainly because safer assets yield less profit to the investors.
- Investor sentiment: A low-interest rate environment may not prompt investors to turn to cryptocurrencies for safety and higher yields.
- Inflation: Lower interest rates may lead to inflation in the future, which can result in undermining the effectiveness of the low rates.
These are the main disadvantages of the low interest rates on cryptocurrency. There are several other disadvantages including a drop in bank deposits, debt increase, and so on.
Conclusion
Interest rates have been rising in the past few years, but now the Fed has low interest rates. This is expected to go on for a while. This presents a major opportunity for traders to gain profits. If any dips arise in these times, the long-term investors can use this opportunity to buy major stocks at their bargaining price. There is also the fact that traders may go for high-risk investments during these times. If you’re currently looking to do the same, it is better to conduct thorough research on the trends in the market before proceeding with the investment.
TROY Creating History In The Crypto Market Surges 240.48% In The Last 4 Weeks.
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