The Federal Reserve has implemented a 50-point rate cut, sparking optimism around potential liquidity conditions that could lead to a surge in Bitcoin prices. However, cuts of this magnitude come with significant risks, and profits in the crypto market are far from guaranteed.
While global liquidity is likely to rise, it does not necessarily mean this will translate into inflows for Bitcoin.
Rate Cuts, Liquidity, and Bitcoin
Following the Federal Reserve’s 50-point rate cut, Bitcoin’s price has shown upward movement, and many in the community anticipate a bull market. However, it’s crucial to note that rate cuts alone do not guarantee such favorable market conditions; other factors must also be considered. The central factor here is global liquidity.
At first glance, Bitcoin’s recent price action has appeared sluggish and indecisive. However, Raoul Pal, CEO and founder of Global Macro Investor, highlighted that Bitcoin’s correlation to global liquidity (L2) has been “closer than ever before” in 2024.
Looking at historical data on global liquidity (M2) and Bitcoin prices, this year’s correlation is particularly striking.
The Role of Global Liquidity and Bitcoin’s Price
Adrian Fritz, Head of Research at 21Shares, emphasized the relationship between rate cuts and liquidity in an interview with BeInCrypto. He noted that “the recent Fed rate cut could cause short-term Bitcoin price volatility. The extent of the cut will heavily influence market reactions, with a more aggressive 50 bps cut providing short-term liquidity relief.”
This aggressive rate cut has already impacted Bitcoin, with the dollar being the global reserve currency, making U.S. rate cuts influential on liquidity and market risks. Crypto continues to offer a significant liquidity pool for international markets, a dynamic that has only grown.
Quinten Francois, co-founder of WeRate, has pointed to trends that suggest a global liquidity spike, with Bitcoin standing to benefit.
Global Liquidity Spikes and Bitcoin’s Future
According to Francois, the 2024 liquidity spike trend appears significant. However, the volatility in the market remains a critical concern.
Rob Viglione, CEO of Horizen Labs, also shared insights with BeInCrypto. Initially, he expected a 25-point cut, suggesting that major price swings were unlikely in that scenario. “In the longer term, lower interest rates will favor risk-on assets like Bitcoin, as investors seek higher returns outside traditional investments,” Viglione explained.
Both underestimated the impact of the 50-point cut. Viglione cautioned that such a drastic reduction could spark concerns about deeper economic challenges or even a recession, leading to a potential price pullback. This is especially relevant given Bitcoin’s struggles to break past the $60,000 mark and September’s historically weak performance in broader markets.
Despite these risks, Bitcoin has surpassed $60,000. Viewed as a risk-on asset, Bitcoin stands to benefit from lower interest rates—assuming investor confidence remains strong. Although no one can predict the future, we may see Bitcoin reach $100,000 sooner than expected.
Disclaimer
In line with Trust Project guidelines, BeInCrypto remains committed to transparent and unbiased reporting. Readers are encouraged to verify facts independently and consult professionals before making decisions.
