Please click the link below to listen to the 55th episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
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Two Minute Crypto – BTC Price and Rate Cuts – A Heavenly Match?
Welcome to Two Minute Crypto. Today’s episode examines whether recent macro trends in global central bank policy will have a discernible impact on Bitcoin.
For the first time in Bitcoin’s history major global currencies have re-started rate cuts with further cuts generally expected in the coming months. Interest rates are already at or near historic lows but the new normal seems to be onwards and downwards. The FED just cut rates for the second time in three months. The ECB went further into negative territory and revamped their long-running Quantitative Easing program to the tune of $20 billion per month. A slew of other central banks such as those of South Korea, Australia, and New Zealand are also cutting rates. In addition, the FED has been repeatedly forced to pump money into overnight lending markets in order to maintain liquidity – something which hasn’t occurred since 2008. To this add a president vocally calling for zero rates or lower and the IMF publicly researching the viability of long-term steep negative interest rates.
Does any of this improve the outlook for BTC? Well, despite a lack of firm evidence to date and the recent sell-off, I would argue, yes. At the very least we are entering a period of time where one of the key market propositions of BTC will be tested – provable scarcity. We all know that BTC is limited in both minting (mining) and in absolute terms. This quality of scarcity has no doubt been pivotal to Bitcoin’s appeal and success over the past decade. However, we are now entering an era where rate cut by rate cut, the contrast between a provably scarce asset such as Bitcoin should become increasingly obvious and perhaps compelling from a long-term investment perspective.
Does this guarantee a spike in value over the coming months? Impossible to say, ever lower rates may continue to prop up other asset classes leading to further highs and a slackening of interest in cryptocurrency yields.
Nonetheless, it does offer the engaged investor an opportunity to examine whether a correlation between central bank policy and BTC price will emerge. I believe it does and it will but only over a multi-quarter – multi-rate cut cycle. At the very least, it’s worth watching for such a price relationship to emerge or indeed be disproven. I’m guessing I won’t be alone in doing so.
Thanks for listening.