FED’s Interest Rate Decisions and Their Reflection on the Crypto Market
The U.S. Federal Reserve (FED) made waves in the markets last week with a 50 basis point interest rate cut. This decision led to upward price movements in many investment vehicles, especially in crypto assets. Bitcoin and other leading cryptocurrencies entered an upward trend as investors’ appetite for risk increased. However, a notable point here is the growing positive correlation between the stock market and cryptocurrencies.
David Lawant, Head of Research at FalconX, stated that this close relationship between crypto assets and stocks could strengthen further with declining inflation and the low-interest rate cycle initiated by the FED. According to Lawant, this process creates a new macroeconomic environment for the crypto market, and the likelihood of a crypto bull market increases as the FED continues with interest rate cuts.
Macroeconomic Effects on Stocks and Cryptocurrencies
The sensitivity of U.S. stocks, especially growth-focused sectors like technology, to macroeconomic developments has been known for a long time. However, the close correlation between cryptocurrencies and stocks highlights how globally intertwined markets have become. According to analysts, the volatility in the stock market is now significantly impacting crypto assets as well.
Chris Rhine, Portfolio Manager at Galaxy, expressed that the FED’s interest rate cut cycle would accelerate the recovery process for stocks and similarly place the crypto market in a positive trend. According to Rhine, current positive catalysts for both stocks and cryptocurrencies outweigh negative ones, indicating that the correlation may remain elevated for some time.
What Do Experts Expect for the Future?
This new dynamic in global markets may become even more complex, especially as the U.S. presidential elections approach. Analysts note that election results could have a significant impact on the crypto market. Particularly, a potentially more crypto-friendly administration and a more favorable regulatory framework could increase the risk appetite for crypto assets.
Moreover, the wider acceptance and liquidity provided by Bitcoin ETFs are among the factors that could support further institutional adoption of crypto assets. This could contribute to the market’s maturity and reduce volatility to some extent. However, the sustained high correlation suggests that the crypto market remains dependent on stocks and macroeconomic developments, continuing to experience volatility.
The correlation between cryptocurrencies and U.S. stocks continues to rise in line with global macroeconomic developments. Factors such as the FED’s interest rate cuts and inflation data have brought these two markets closer together. According to experts, while the rising correlation shows that crypto markets are being embraced by a broader investor base, it also makes them more susceptible to external factors.
