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BTC $96,420 +2.34% ETH $3,280 +1.82% SOL $185.40 -0.92% BNB $642.50 +0.45% XRP $2.18 +3.12% DOGE $0.082 -1.50% ADA $1.05 +0.80% AVAX $42.10 +1.15%
08/22/2024

Past Rate Cuts Point to Potential Tailwind for Crypto Bull Market — 21Shares

The U.S. Federal Reserve is expected to begin cutting its benchmark interest rate in September. Fed Chair Jerome Powell sent his strongest signal yet of an imminent rate cut at the annual Jackson Hole conference. Bitcoin's price surged past $63,000 following the news, with analysts forecasting further gains as the Fed begins cutting rates. Leena ElDeeb, a researcher at ETP issuer 21Shares, explains that pas

Past Rate Cuts Point to Potential Tailwind for Crypto Bull Market — 21Shares

The U.S. Federal Reserve is expected to begin cutting its benchmark interest rate in September.

Fed Chair Jerome Powell sent his strongest signal yet of an imminent rate cut at the annual Jackson Hole conference.

Bitcoin's price surged past $63,000 following the news, with analysts forecasting further gains as the Fed begins cutting rates.

Leena ElDeeb, a researcher at ETP issuer 21Shares, explained that past rate cuts have historically benefited digital asset prices, as investors gain access to cheaper borrowing costs and are incentivized to take on riskier assets. In a statement to Cointelegraph, the analyst pointed to a specific rate cut at the onset of the COVID-19 pandemic as an example:

"In March 2020, when the Fed cut rates by 150 basis points (bps) to near zero, the total crypto market cap surged approximately 450% by year-end, and Bitcoin's price soared 200% over the same period."

ElDeeb clarified that while past performance does not guarantee future results, the March 2020 rate cuts could serve as a benchmark for gauging the expected effects of the upcoming rate cut on crypto markets.

Chart showing current interest rates. Source: Federal Reserve

Related: Bitcoin braces for Powell event as $61K BTC price eyes next breakout

M2 Money Supply as a Market Signal

The 21Shares analyst also highlighted shifts in M2 money supply — a measure of the total amount of money circulating in the global economy — as a potential catalyst for a Bitcoin breakout.

ElDeeb noted that Bitcoin's price tends to bottom out a few months before M2 money supply hits its floor, then surges sharply upward. This rapid price appreciation typically overshoots the liquidity increase before pulling back in what the analyst described as a "mid-cycle correction."

The analyst concluded by sharing her conviction that Bitcoin ETFs are a "key catalyst" for price appreciation within the M2 money supply cycle she outlined.

Institutional Interest in Digital Asset Investment Vehicles Remains Elevated

Despite $528 million in outflows from digital asset investment products during the week of August 3, institutional interest in digital asset investing remains high, as evidenced by strong inflows into BlackRock's Bitcoin ETF and Fidelity's Wise Origin Bitcoin Fund of $20.3 million and $61.3 million, respectively.

Weekly institutional flows into digital asset investment vehicles. Source: CoinShares

This strong interest is further confirmed by the behavior of investment advisors, who increased their exposure to Bitcoin ETFs in Q2 2024.