With inflation gradually easing, Goldman Sachs expects the Federal Reserve to start a series of 25-basis-point interest rate cuts beginning in November 2024 and continuing through mid-2025. These cuts aim to bring the target range down to 3.25-3.5%, raising the question of whether this shift could trigger a new bull run in the cryptocurrency market.
The Fed’s current overnight rate stands at 4.75-5.00%, and the CME FedWatch Tool shows a 94.1% likelihood of a 25-basis-point cut in the next meeting. The purpose behind these rate cuts is to reach the Fed’s elusive 2% inflation target by making borrowing cheaper and stimulating economic growth.
Lower interest rates generally encourage investment in riskier assets, such as cryptocurrencies, because borrowing costs decrease.
Recent developments suggest that lower rates could have a positive effect on the crypto market. For example, Bitcoin rose by 3% in mid-September following a 0.5 percentage point rate cut by the Fed, with its price now around $62,120. This price jump hints that future rate reductions may be welcomed by the market.
Interest rate cuts have often driven investors toward high-growth assets like digital currencies, as traditional investments become less appealing. Additionally, lower rates can weaken the U.S. dollar, making cryptocurrencies more attractive as an alternative store of value.
If the expected rate cuts take place, Bitcoin and other leading digital assets could benefit from an influx of new capital, boosting prices in the coming months. The market may become even more favorable for cryptocurrencies as investors’ appetite for riskier assets grows.
In a similar move, Goldman Sachs predicts that the European Central Bank (ECB) will also begin reducing interest rates, starting with a 25-basis-point cut. The ECB is expected to continue this trend until reaching a 2% rate by mid-2025.
With both the Fed and ECB moving towards rate cuts, the environment appears set for a potential rally in risk assets, including cryptocurrencies. As central banks ease monetary policies, the lower returns on traditional investments could drive more investors toward digital currencies, potentially paving the way for significant market gains.
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