The global financial ecosystem has its eyes on the upcoming Federal Reserve (Fed) meeting in November, where a 25 basis point interest rate cut is expected to be decided, according to CME’s FedWatch report. The chances of this cut happening are at 95%, while there is only a 5% chance that the current rates of between 4.75% and 5.00% will remain. What does this mean for cryptocurrencies? Here we explain it to you in simple and clear points!
1. The Impact of a Rate Cut on the Crypto Market
- Lower Borrowing Costs: With lower interest rates, the cost of borrowing goes down, making it easier for investment and capital to flow into riskier markets like cryptocurrencies. This environment could push investors to seek out digital assets, hoping for higher returns.
2. Possible Rise in the Price of Bitcoin and Other Cryptocurrencies?
- Increased Demand: Historically, cryptocurrencies have been seen as alternative and resilient assets. With lower rates, investors often look for higher-yielding assets and due to the possibility of higher returns, they might get into cryptocurrencies like Bitcoin and Ethereum.
- Less Attachment to the Dollar: When rates are lowered, the dollar can depreciate, and this usually leads investors to seek "safe havens" such as Bitcoin, which is considered "digital gold."
3. What about stablecoins?
- Increased Demand for Liquidity: Falling rates could mean increased demand for stablecoins (such as USDT and USDC) from investors looking to stay liquid or tap into the investment potential in crypto. Stablecoins become a temporary safe haven option for many in this context.
4. Disadvantages and Risks for Crypto
- Possible Volatility: While rate cuts may boost cryptocurrencies, they may also increase short-term volatility as any global economic changes can create uncertainty. While many expect a boost, crypto markets may see significant fluctuations as investors adjust their strategies.
5. What to do as a Crypto Investor?
- Investment Opportunity: If you are interested in cryptocurrencies, a cut in interest rates could offer a favorable time to invest. However, it is important to remember that crypto markets are volatile, and investment decisions must be supported by a solid strategy and good analysis.
