Tomorrow, the Fed is set to slash interest rates, and if history tells us anything, this could spark another market surge like the 2020 bull run. Want to know how to ride the wave? Let’s dive in:
What Are Fed Rate Cuts?
When the U.S. economy slows down, the Federal Reserve lowers interest rates, making borrowing cheaper. This encourages businesses and consumers to take out loans and spend more, boosting economic activity. More loans mean more money in circulation, which can lead to inflation.
The 2020 Rate Cuts
Before the pandemic, rates were already low (1.5% - 1.75%), but when COVID-19 hit, the Fed slashed rates twice in one month:
- 50 bps cut (0.5%)
- 100 bps cut (1%)
This brought rates down to 0% – 0.25%, flooding the market with liquidity and fueling a massive bull run, especially in crypto.
Impact on Crypto
Cheap money pushed investors into riskier, high-growth assets like crypto, igniting the sector’s explosive growth. But it also contributed to inflation, which became more evident in 2021.
2024 Rate Cuts
Now, inflation is a top concern, so this time the Fed is expected to move slower. Forecasts for the first cut include:
- JP Morgan: 50 bps
- Morgan Stanley: 25 bps, with gradual cuts expected throughout 2024
- Bank of America: 25 bps, potentially more if the economy struggles.
2020 vs. 2024 Rate Cuts
- Inflation is a bigger worry now.
- Rates are higher (5.25% – 5.50%) compared to near-zero in 2020.
- The cuts will be gradual, unlike the aggressive slashes in 2020.
What’s the Play for Crypto?
While rate cuts remain bullish for Bitcoin and crypto, don’t expect a repeat of 2020’s bull run. The cuts will help, but the market dynamics are different this time around.
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