European Central Bank Cuts Interest Rates, What’s Next for Crypto
Last Thursday, on the 12th of September, the European Central Bank (ECB) decided to cut interest rates by 25 basis points (0.25%) – from 3.75% to 3.50%. This decision has implications for the markets and of course for crypto as well. But that’s not all, the US Federal Reserve, is set to make its own interest rate decision later this week.
These key events are likely to have an impact on the crypto market but what exactly can we expect?
ECB Cuts Rates: What does that mean for Crypto?
The ECB’s recent rate cut marks the second rate cut this year, after the first rate cut since 2019 to stimulate the economy in June.
To most, this decision came as no surprise and is generally seen as a positive boost for financial markets. Such a policy is expected to help businesses gain easier access to credit and boost investment, which in turn, could have a positive impact on stock and crypto markets.
With inflation in Europe seeming to be under more control, the ECB has more wiggle room to further cut the interest rates. A move as such, comes with the expectation or better said is aimed at stimulating the economy further and promoting a soft landing after a period of monetary tightening. Essentially, the bank wants to avoid a recession.
Lower interest rates tend to mean more liquidity, which can be beneficial for higher-risk investments such as crypto. Bitcoin (BTC) has already shown signs of recovery, but it remains to be seen if BTC can break through important technical levels and confirm an upward trend.
Ethereum (ETH) is lagging Bitcoin and struggling to gain momentum. While ETH could bounce back in the short run, it is generally expected that Ethereum will continue to underperform as long as market sentiments are focused on Bitcoin.
Interest Rate Cuts: What about the Federal Reserve?
The Fed is expected to announce its first rate cut since 2019 on Wednesday the 18th of September. There is still uncertainty about the size of the cut – it could be 25 or 50 basis points – but the cut is likely to have a significant impact on markets.
Similar to Europe, the rate cut in the US is widely considered to provide the markets with a positive boost. If economic conditions remain stable, this could lead to a further price increase in both the stock and crypto markets.
It’s shaping up to be a big week for Bitcoin and the rest of the crypto market and we’re curious to see how the market will respond to the interest rate cuts.
Update (19/09/2024): The U.S. Federal Reserve announced a 50-basis-point interest rate cut. Post news, Bitcoin surged past €56,000. This is the first rate reduction since 2020, a move widely anticipated by cryptocurrency traders. Many expect both Bitcoin and the broader crypto market to gain from this shift in policy.
