The US Federal Reserve delivered a 50 bps rate cut that caught the market off-guard, indicating the beginning of an easing cycle. The central bank also suggested that there would be two more rate cuts in the current year. This action brings fresh expectations of a soft landing in the U.S. economy, seeking to bring the growth rate down without causing a recession.
According to the analytical platform Kaiko, upon the announcement, Bitcoin (BTC) jumped 5.2% in the next 24 hours in tandem with the resurgence of U.S. stocks. This came as the cryptocurrency market surged, with investors looking at lower rates as a boost to the digital assets.
✂️ Rate cuts in the US proved to be a boon for $BTC. Prices popped following the Fed's 50 bips cut, its first in 4 years. pic.twitter.com/IfFyPMVAjx
— Kaiko (@KaikoData) September 24, 2024
CVD Buying Pressure
According to a report on Tuesday, after the Fed’s announcement at 6:00 PM UTC on September 18, the Bitcoin CVD jumped considerably. The CVD measures the net buying and selling pressure, indicating strong market activity. Offshore exchanges were under aggressive buying pressure, especially when the Asia region markets came into action in the evening. People came in droves and the price of Bitcoin increased.
This increase was not only observed in the spot markets. The Bitcoin derivative markets also trended upward. From 16th to 19th September, open interest in the BTC futures of Bybit, OKX, and Binance rose by 12% and was valued at $12 billion. This shows that traders are increasingly confident that the Bitcoin price may continue growing.
Central Bank Comparison
Surprisingly, this reaction to the Fed’s rate cut was much more forceful than the reactions to similar actions by other central banks. The European Central Bank (ECB) and the Bank of England (BoE) have slashed rates this year but Bitcoin has remained stagnant without witnessing any appreciation.
USD in Bitcoin Trade
Whenever U.S. interest rates are reduced, the Dollar tends to decline in value, which is advantageous for cryptocurrency. Bitcoin is mainly priced in the US Dollar, which means that when the Dollar weakens, the price of Bitcoin in Dollars would rise.
This is important because the USD and USD-backed stablecoins form the largest part of Bitcoin trade at 93%. However, the historical negative relationship between Bitcoin and the Dollar has broken recently, which means that other factors may determine the price of Bitcoin.
Since more rate cuts are expected in the near future, market participants are paying attention to market changes. Interest is building on how these actions will affect the largest virtual currency, Bitcoin, and whether it will keep on rising or encounter new problems in the future.
