The Federal Reserve is poised to cut interest rates by 25 to 50 basis points on September 18, a decision that could have a significant impact on the cryptocurrency market. While some believe this cut might push Bitcoin’s price up, Arthur Hayes, co-founder of BitMEX, warns it could also lead to a sharp drop in crypto markets. Let’s delve into why Hayes believes this rate cut might spell trouble for Bitcoin and other digital assets.
FED Rate Cut Risks: A Crypto Crash?
The U.S. Federal Reserve (Fed) is set to announce its first interest rate cut in four years on September 18. Initially, a small cut of 25 basis points was anticipated. However, recent trends suggest a larger cut of 50 basis points is now more likely. Historically, such rate cuts have been positive for Bitcoin, often pushing its price higher.
But Arthur Hayes isn’t so sure. He believes that cutting rates could worsen inflation since lowering rates is risky when inflation is still high. Making borrowing cheaper will only add to inflation. He also warned that a rate cut could lead to a stronger yen, which might cause a major sell-off in riskier assets like cryptocurrencies. A similar situation occurred in August when the Bank of Japan raised its rates, causing Bitcoin to drop sharply from $64,000 to $50,000 in just a week. Hayes fears that if the Fed cuts rates, we might see an even bigger crash in the crypto market.
Central Bank Losing Grip
There is growing concern that central banks might be losing their grip on the economy. According to market strategist Russel Napier, governments are increasingly taking charge of monetary policy and focusing on cutting debt, making central banks less influential. Arthur Hayes agrees with this perspective and sees this shift as favorable for cryptocurrencies.
According to Hayes, as governments take over control and create targeted liquidity, crypto assets will become even more crucial. Politicians will take control and guide banks to inject money into specific sectors. In this changing financial landscape, Hayes argues that crypto is uniquely positioned to thrive. “Crypto is the only global asset that can help you escape the traditional financial system,” he asserts.
FED: More Rate Cuts Ahead
The Federal Reserve is expected to cut interest rates three times next year, according to a Reuters poll of 101 economists. Look for a 25 basis point cut in September, November, and December. By the end of 2024, the federal funds rate could be between 4.50% and 4.75%. The Fed aims to bring rates down to a neutral level, which experts believe should be around 2% to 3%. Blockware CEO suggests these cuts are aimed at balancing the economy. Get ready—these changes could have a big impact on the market!
The ongoing adjustments in interest rates will likely continue to influence the cryptocurrency market, either providing opportunities for growth or presenting new challenges. Investors and market participants should stay informed and be prepared for potential fluctuations.
