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Tuesday, 2 June 02:51 (GMT -05:00)



Foreign exchange market

Fed Cuts Interest Rates. What Does It Mean For Bitcoin?


The other day, the U.S. Federal Reserve did what many of us had been waiting for. Still, the pace at which tey did was really surprising. In particular, the Fed cut the rates from 1-1,25% all the way down to 0-0,25%. What does it mean for the entire cryptocurrency market?

Why does it look so weird in the first place? Well, the thing is that the Fed already made another interest rate cut a couple of weeks before this one, which is a very rare step in itself. The interest rates eventually dropped to the levels were they used to be in 2008-2015. That is the best proof that a new major crisis is underway.

Since the coronavirus pandemic hit the world, the global economy in general and all of the economies around the globe, including the major ones, have been suffering from its consequences. The entire global financial system is in crisis again. And that's not all. The Fed also decided to pump huge amount of dollars into the market. We are talking about 700 billion dollars in asset purchases, with 500 billion dollars allocated to T-bond purchases and the remaining 200 billion allocated for other securities.

According to the Federal Reserve, they want to restore the normal functioning of the T-bond market as soon as possible. They want to signal the markets that they are not going to limit themselves when it comes to asset purchases.

What does it mean for Bitcoin?

Bitcoin should have saved us during the crisis times. Has it failed so far to do so? Well, yes and no.
To start with, it failed during the first wave of the market panic. Gold and silver are already losing their value, though less rapidly. When the situation stabilizes, the investors will start approaching the market rationally again.
 
We know that the Fed's deicion may (bot not certainly will) lead to an inflation hike. Other central banks are already following the Fed and conducting the same policies. This may trigger an inflation pandemic. If that's the case, international investors may start looking for safe-haven assets. Apparently, those are gooning to be precious metals. What about cryptocurrencies?

Pay attention to the fact that Bitcoin has a determined supply of coins planned in advance. And it doesn't rely on governments and other authorities. It may be a hit. But the key word is MAY. Let's consider the fact that there were no cryptocurrencies during the latest global crisis in 2008. With that being said, we cannot say for sure how Bitcoin is going to behave under such circumstances.

 

 

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