The US Federal Reserve (Fed) cut interest rates by 0.5 points to 5%. This is the first rate cut in 4 years, causing the price of Bitcoin (BTC) and other cryptocurrencies to react with high volatility to the Federal Open Market Committee (FOMC) decision.
However, the United States is not the only country making adjustments to its monetary policy; other major economies are also taking key decisions that could impact global markets, including bitcoin (BTC) and cryptocurrencies.
In the UK, the Bank of England has not changed interest rates, which remain at around 5%. Inflation data for August showed that the Consumer Price Index (CPI) rose at an annual rate of 2.2%, remaining above the 2% target. The British monetary policy authority thus continues to take a cautious stance.
UK annual interest rate. Source: Trading Economics.
On Friday, Bank of Japan (BOJ) officials will decide what to do with interest rates. Although no major changes are expected, board members are analyzing the volatility of financial markets. after the biggest crash in the history of Nikki 225 last August 5th.
As CriptoNoticias reported at the time, the interest rate rose to 0.25%, which caused outflows from the Japanese Yen Carry Trade made by investors, which consists of borrowing yen at low interest rates and exchanging them for dollars to invest in risky markets.
Japan’s annual interest rate. Source: Trading Economics.
In the rest of the world’s major economies, China and Germany They adopted a less aggressive monetary policy and continued to cut interest rates. In the Asian giant, the rate is 3.35%, while in the European country it dropped from 4% to 3.65% annually.
China’s annual interest rate. Source: Trading Economics.
In this context, it is clear that the world’s largest economies tend to reduce interest rates, which could be beneficial for the assets considered risky like BTC.
When a Central Bank determines a cut in the annual interest rate, it injects more liquidity into the economy, something that should stimulate growth and consumption.
The cost of borrowing is lower, so companies and investors seeking loans tend to migrate to emerging markets such as digital assets.
Following the Fed’s decision, the BTC price reacted upwards and It quickly climbed to $61,000 in a matter of minutes.s. Currently, its price is above the $63,000 barrier, as shown in the following chart. TradingView:
BTC price so far in 2024 until September 19. Source: TradingView.
What happens to BTC if the interest rate is high?
Interest rate policies in countries like the UK and Japan may impact global liquidity, resulting in investors having less appetite to place their assets in BTC.
In a context of economic uncertainty, Some investors might turn to BTC to diversify their portfolioas it is not directly subject to the policies of a single country. In other words, it is an option to reduce exposure to economic crises, although in some regions there are regulations on the industry.
In this regard, BlackRock, the asset manager The world’s largest Cryptocurrency, the cryptocurrency created by Satoshi Nakamoto, argues that the digital currency would become a “hedge against risks that traditional assets cannot address, particularly in times of heightened geopolitical and economic uncertainty.”
In the report “Bitcoin: A Uniquely Diversifying Asset”, he raises the possibility of a BTC narrative emerging as “safe haven” asset in times of monetary and geopolitical instability.
The currency differs from fiat money because it has a total supply limited to 21 million units, so inflation is minimal and it does not depend on the decisions of a government or central bank. Having an emission limit influences the price of BTC in the medium or long term.
The truth is that, although it is still in an early phase of adoption, in terms of a global means of payment or store of value, for BlackRock there are “evolutionary prospects over time for it to be widely adopted as a global monetary alternative.”
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