September 23, 2024
By Anjali Kochhar
The U.S. Federal Reserve has reduced interest rates by 50 basis points (bps), or around 4.8%, marking a substantial shift in policy. This action is being taken in response to inflation that began to stabilise in August 2024, dropping from a peak of 9.1% in 2022 to 2.5%. The rate reduction seeks to help consumers and companies by bringing down borrowing costs, expanding employment opportunities, and promoting economic expansion. This is the first time the Fed has cut rates this sharply in more than four years.
The rate drop, which was widely expected, had an immediate impact on the bitcoin market. Bitcoin, the largest cryptocurrency by market capitalisation, increased by more than 3% to about $62,000 following the announcement. Other prominent cryptocurrencies, such as Ethereum, Binance Coin (BNB), and Solana, witnessed rises of up to 4%, fuelled by restored investor optimism.
Edul Patel, CEO of Mudrex, commented on the market reaction, stating, “The highly anticipated 50-basis-point Federal rate cut has sparked a strong rally in the crypto market, with further rate cuts expected by the end of 2024. Bitcoin surged over 3%, trading around $62,000 after a brief dip from profit-taking. If sustained at these levels, BTC could attempt a rally towards $63,000 soon, with key support closer to the $60,100 mark. Other coins such as Ethereum, BNB, and Solana also went up as much as 4% with strong momentum and a positive economic outlook from the Feds.”
Patel’s analysis reflects the growing sentiment that monetary easing benefits riskier assets like cryptocurrencies. As borrowing costs decrease, investors are likely to pour more capital into assets that promise higher returns, such as Bitcoin and altcoins. The expectation of further rate cuts by the end of 2024 could also provide additional liquidity to the markets, fostering more investment in the crypto space.
Sandeep Nailwal, Co-Founder of Polygon, notes that the Fed’s 50-bps rate cut has invigorated the crypto market, boosting investor confidence. He explains that lower interest rates generally make riskier assets like cryptocurrencies more attractive, potentially leading to increased adoption and investment. This rate cut could spur further growth in the crypto sector as investors seek higher returns.
The Federal Reserve’s decision to cut rates is a direct response to the slowing job market. Over the past few months, there have been clear indications that job growth is decelerating, and the Fed is now prioritising economic support. Lower interest rates are expected to make mortgages, credit card loans, and auto loans more affordable for consumers, potentially stimulating demand across various sectors. Businesses are also likely to benefit from easier borrowing conditions, leading to increased investments and expansion efforts.
The Fed’s 50-bps rate drop is a bold action aimed at stabilising the economy and restoring job creation. Its immediate impact on the cryptocurrency market was favourable, with Bitcoin and other major digital assets rising in value. As the year proceeds, additional rate cuts may maintain this pace, benefiting both traditional markets and the ever-changing crypto sector.
About the author
Anjali Kochhar covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.
