On September 18, the US central bank cut interest rates by a surprising 0.50%. Since then, all incoming economic data has told us that their choice for that steep interest rate cut may have been a bit exaggerated. But what does this mean for the Bitcoin price?
What does this Federal Reserve ‘mistake’ mean for Bitcoin?
In principle, it is not a bad development for Bitcoin that the US central bank has opted for a significant interest rate cut.
Lower interest rates ease financial conditions, boosting global liquidity and generally bullish for risk assets like Bitcoin.
The above graph from Julien Bittel and Global Macro Investor shows the interesting relationship between global liquidity and the Bitcoin price.
Every time global liquidity entered a bull market, Bitcoin also entered a bull market. Now the world seems to be experiencing another revival of liquidity, which could potentially set us up for the continuation of Bitcoin’s bull run.
Why did the Federal Reserve make this choice?
The question then remains: why did the US central bank opt for that 0.50% interest rate cut? At the time, many economists described it as an overreaction and there was also great division within the American central bank about the decision.
If the division was so great, it even seems a bit irresponsible to make such decisions so close to the elections. This decision has caused the financial markets to go into overdrive and can therefore influence voters.
After all, this is a Federal Reserve that operates under a Democratic government. If stocks and other financial assets show green numbers when Americans have to go to the voting booth, then that could be an advantage for the Democrats, i.e. for Kamala Harris.
Which does not alter the fact that at the time of the interest rate cut there were also some indicators that justified a more severe cut. After all, it remains difficult to play central banker in this complex financial world.
Source: https://newsbit.nl/de-overdreven-reactie-van-de-federal-reserve-en-de-gevolgen-voor-bitcoin/
