Steno Research underlined Bitcoin’s limited exposure to US interest rate cut cycles, noting that BTC has only experienced one such cycle to date, which began in 2019.
During this period, Bitcoin fell by about 15% between the Fed’s first rate cut in August and the end of November, when the Fed cut rates by 75 basis points. It wasn’t until aggressive monetary stimulus during the COVID-19 pandemic in March 2020 that Bitcoin found a bottom and began its rapid rise.
The first US rate cut of this cycle is approaching, with the next Federal Open Market Committee (FOMC) meeting scheduled for September 18, Steno Research said in a statement. Market estimates call for the Fed to cut interest rates by at least 25 basis points, with a 54% chance of that outcome. There is a lower 46% chance of a 50 basis point cut, which Steno Research sees as unlikely after a stronger-than-expected Consumer Price Index (CPI) report.
The US interest rate is particularly important for the cryptocurrency market as it affects investors’ risk tolerance. “If the Fed’s interest rate is 5%, few people will consider investing in digital assets unless they expect returns significantly higher than 5%, given the much greater risks associated with crypto,” Steno Research said.
Steno Research’s Principal Component Analysis (PCA) model shows that rising global yields tend to negatively impact Bitcoin and Ethereum prices. However, lower interest rates generally boost performance in U.S. equities and corporate credit, indirectly benefiting the crypto market.
*This is not investment advice.
