Interest rate cuts are coming, will bitcoin rise?

The Fed's interest rate cut is undoubtedly a long-term focal point in the market! There has always been a voice in the market that believes the Fed's rate cut is bullish for the rise of bitcoin. This view is not without reason, but relying solely on this simple perception is not enough. Now that the rate cut drama has unfolded, in order to increase investment success rate, we need to further clarify several questions:

- Will bitcoin rise as soon as there is an interest rate cut?

- Why does an interest rate cut affect the price of bitcoin?

- How much impact does an interest rate cut have on price appreciation?

These questions may have a significant impact on our investment decisions. In this article, we will analyze them.

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Will bitcoin rise as soon as interest rates fall?

Let's review the two recent interest rate cuts:

- 2019 interest rate cut: The market began to anticipate the interest rate cut from around April of that year, and the price rose from around $4000 to $13000. After the Fed started cutting interest rates in July, the price initially dropped by 30% before rising.

- 2020 interest rate cut: The Fed significantly cut interest rates in March of that year in response to the COVID-19 pandemic, but the price of bitcoin did not immediately surge. It only began the main uptrend at the end of the year.

It is clear that the relationship between interest rate cuts and bitcoin prices is far from as simple as "rise as soon as the rate falls." The price of bitcoin may rise ahead of the rate cut cycle, or it may take some time after the cut before it starts to rise.

So what about this time? Let's first look at the historical trend of the federal funds rate and the price of bitcoin:

From historical data, the current market situation may be similar to 2019:

- Interest rate hikes in 2018 and 2022-2023Q3 led to a bear market for bitcoin.

- When the Fed no longer raises interest rates and the market begins to anticipate a rate cut, Bitcoin reacts in advance, initiating two phases of bull markets in H1 2019 and Q4 2023 to Q1 2024.

Therefore, after the rate cut in September, the market may not rise and could fall, just like what happened after the rate cut in July 2019.

But what's different in 2024 is that due to the postponement of the interest rate schedule, the market has adjusted in Q2 and Q3, causing the price to fall from above $70000 to below $60000. So, the market may not necessarily fall after this rate cut.

So why does an interest rate cut affect the price of Bitcoin?

The bullish impact of an interest rate cut on Bitcoin mainly comes from two aspects: inflow of funds and increased inflation.

1. Inflow of Funds

The Federal Reserve's interest rate cut refers to the reduction of the federal funds rate, which leads to a decrease in market interest rates and thus reduces the cost of capital for society. Generally speaking, interest rate cuts stimulate investment activities and make investors more inclined to high-risk, high-return assets. Bitcoin is one of the potential benefiting assets.

Some people may not know that Bitcoin is currently one of the top ten assets in the world and still has great flexibility.

2. Inflation continues to rise

Inflation is often closely related to interest rate cuts.

Although inflation has returned to a downward trend under the efforts of the Federal Reserve, it is still unknown whether inflation can be controlled after the interest rate cut is initiated.

If unexpected inflation occurs during an interest rate cut cycle, Bitcoin, known as 'digital gold', could potentially benefit greatly. This is because the total amount of Bitcoin is constant and its issuance rate decreases, making it recognized for its scarcity and resistance to inflation. As fiat currency depreciates, Bitcoin becomes more valuable.

In history, after each Bitcoin halving, the price of Bitcoin has experienced a major bull market, and the strengthening of its resistance to inflation may be one of the reasons.

Outlook: Will the next bull market come? How strong will it be?

For the market to experience a bull market, just one rate cut may not be enough, as it may have already risen in advance. The key points for the subsequent market may be:

1) The extent of the rate cut: Will the interest rate drop quickly?

2) The reason for the rate cut: Is there an economic recession forcing the Fed to tolerate inflation?

3) Changes in regulatory policies after the election, the health of the on-chain fundamentals, and more.

Imagine, if the next bull market of Bitcoin comes, how much can the price of Bitcoin rise? The following chart reviews the historical price increase of Bitcoin:

Historical data shows that the early bull market of Bitcoin had a very astonishing increase, but the elasticity of each bull market gradually reduced. It is estimated that the next bull market will be the same. The reason is simple - the market size of Bitcoin is growing, and the same increase in price requires more support in funds.

However, even if it doesn't have multiples of increase, the increase of Bitcoin is still worth looking forward to, let's keep an eye on the future market!

How to invest in Bitcoin

If you want to invest in Bitcoin, the first way is to buy directly. Futubull now supports direct purchase of Bitcoin! For details, please refer to this operating guide:How to trade Crypto on Futubull

Another way to invest in Bitcoin is through ETF. Purchasing Bitcoin ETF is convenient and quick, and it can also avoid the inconvenience and risk of directly holding Bitcoin. For more information about Bitcoin ETF, please refer to:What is the difference between investing in Crypto with ETFs and spot or futures?