What Does Fed Rate Cut Mean For Crypto Prices?

August 1, 2019 11:00 AM
Crypto Has Had An Inconsistent Short-Term Relationship With Rate Moves
Easy-Money Central Bank Policy is Long-Term Factor Supporting Asset Class
Crypto is speculative and easy money policy moves investors up the risk curve.
Crytpo and Bitcoin Futures Story of Day






Yesterday, The Fed Cut The Overnight Rate For The First Time Since 2008 - Crypto Generally Has Had An Inconsistent Short-Term Relationship With Rate Moves, However, Unpopular Easy-Money Central Bank Policy Has Been One Of The Long-Term Sentimental Drivers Of Support For The Asset Class

The 25 bps cut and subsequent communique kept the door open for policy flexibility but was described as a 'mid-cycle adjustment' by the Bank. The move was less than the 50 bps cut preferred by the Trump Administration which had pointed to certain depressed inflation metrics as justification for an aggressive decision. Trump has been vocally critical of Chairman Powell and has blamed many economic hiccups on the Bank. Such public criticisms of the Fed had previously been seen as politically taboo.

Takeaway: Easy monetary policy theoretically helps crypto and Bitcoin in several ways. First, being primarily a speculative instrument at the moment, easier policy tends to move investors up the risk curve. Furthermore, as income on yielding instruments declines, the opportunity costs of speculative positions decrease. Additionally, the threat of inflation in the mid-term tends to push investors to fixed or slow-growing supply dynamics and there is some evidence that the threat of easier policy has already contributed to gold recently touching on multi-year highs. Finally, one of the early 'crowds' of supporters of Bitcoin were those who believed that politically-motivated easy-money policies were doing long-term harm to the financial system that would ultimately result in something near systemic collapse. This rate cut, which comes in an election year despite record employment, corporate profits and equity prices, is likely to further embolden the Fed 'naysayers.'

About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at https://www.frnt.io/morningnote