Bitcoin’s value proposition was purportedly just validated with news that the Federal Reserve, the United States’ monetary authority, will be cutting its policy interest rate… again.<\/p>\n
It is important to point out, however, that the price of the cryptocurrency hasn’t immediately reacted to this news. Stocks, however, have \u2014 leading indices have rallied by around 0.5% in the 30 minutes after the announcement.<\/p>\n
On Wednesday, Jerome Powell, the Chairman of the Federal Reserve, revealed that the entity’s Federal Open Market Committee \u2014 the body responsible for altering the interest rate to improve the economy \u2014 has lowered its benchmark funds rate by 0.25% (25 basis points) 5o a range of 1.5% to 1.75%. This is the Federal Reserve’s third cut this year.<\/p>\n
While expected,\u00a0it is believed that dropping interest rates, which equate to liquidity injections into financial markets, benefit the largely “risk-on” Bitcoin, along with the U.S. market. Speaking to Fox Business<\/a> earlier this year, known cryptocurrency analyst Tom Lee said the following on rate cuts:<\/p>\n \u201cBitcoin\u2019s becoming increasingly a macrohedge for investors against things that could go wrong. Rate cuts are adding liquidity. Liquidity is pushing money into all these risk assets and also hedges, which is helping Bitcoin.\u201d<\/p>\n<\/blockquote>\n After President Donald Trump called<\/a> for the nation’s central bank to cut rates earlier this year, Dan Tapiero argued that rate cuts are de-facto debasement (inflation) of the U.S. dollar. He thus claimed that gold and Bitcoin should benefit in the longer run.<\/p>\n As Travis Kling, the CIO of Ikigai Asset Management, pointed out in a recent tweet, Bitcoin, unlike the U.S. dollar, is a “non-sovereign, hardcapped supply, global, immutable, decentralized, digital store of value.”<\/p>\n Tomorrow, the Fed will:<\/p>\n – Buy ~$2bn of T-bills permanently Bitcoin is a non-sovereign, hardcapped supply, global, immutable, decentralized, digital store of value.<\/p>\n — Travis Kling (@Travis_Kling) October 30, 2019<\/a><\/p><\/blockquote>\n\n
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– Buy up to $120bn of Treasuries & MBS overnight
– Cut the Fed Funds Rate 25bps for the 3rd consecutive time<\/p>\n