What Happens to Bitcoin and Cryptocurrencies if the FED Reduces Interest Rates? Here is the Opinion of Experts

The Fed is preparing to lower interest rates in a move that could have significant impacts on the cryptocurrency market.

Speaking at the Kansas City Fed’s Jackson Hole Economic Symposium in Wyoming, Fed Chairman Jerome Powell strongly hinted that rate cuts were on the horizon.

“It is time for policy to adapt,” Powell said Friday, adding that the timing and scale of rate cuts will be determined by incoming economic data and the evolving outlook. “The direction of the path is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” Powell added.

This news is welcomed by the cryptocurrency sector, which tends to thrive in more accommodating economic environments. Digital assets like Bitcoin are often viewed as risky investments and benefit when monetary policy is more supportive of economic growth.

The Fed has been aggressively raising interest rates since March 2022 to combat high inflation, from near zero to between 5.25% and 5.50% by July 2023. This rapid tightening has been the largest rate hike cycle in U.S. history. However, higher interest rates have also driven investors into safer assets that offer solid returns, such as Treasuries. If interest rates are lowered, investors are expected to return to riskier assets, such as stocks and cryptocurrencies.

Lower borrowing costs typically boost economic activity by making it easier for consumers and businesses to access capital. This increased liquidity often leads to higher spending and investment, which can fuel rallies in riskier assets like Bitcoin.

David Brickell, head of international distribution at FRNT Financial, and former forex trader Chris Mill shared a bullish outlook in their newsletter “Connecting the Dots.” They argue that a weakening dollar, along with expected rate cuts, could trigger the next significant crypto rally. “The macro bullish trend has set the stage for Bitcoin to reach its next record high,” they wrote.

*This is not investment advice.