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Investors loved the Fed’s 0.5% rate cut this week.
The S&P 500 hit an all-time high on Thursday, and Bitcoin is up 7% in the last seven days.
There’s a good chance we’ll see more cuts.
On Wednesday, the Fed’s Open Market Committee said it was “considering additional adjustments to the target range” for the federal funds rate.
Translation: we won’t stay at the newly set 4.75% to 5% level for long. The market is giving 60% odds that we’ll see another 0.5% cut in November and 40% odds that we’ll get a 0.25% cut.
Bitcoin tends to rise when rates are low because investors are incentivized to plough their capital into assets with a higher upside than bonds.
This is why cryptocurrencies, like stocks, are considered a “risk-on” asset. Indeed, in a widely circulated research note, BlackRock, the $10 trillion asset management firm that launched the most successful Bitcoin ETF this year, used that very term to talk about Bitcoin.
Moreover, the firm’s analysts wrote that Bitcoin is seen by some investors as a “flight to safety” asset, meaning it can provide a haven during geopolitical crises.
The notion that Bitcoin can perform the same function as gold is an old and hotly debated idea. Given BlackRock’s impact on the crypto market — its Bitcoin ETF sports almost $23 billion in assets — that debate just might fire up again.
Yet it’ll be a sideshow. If rate cuts deliver the mojo crypto investors crave, the last thing they’ll want is a “flight to safety.”
They’ll be anticipating soaring returns.
Have a tip or comment? Contact the author at ed@dlnews.com.