Global stock and bond markets are rallying as the Federal Reserve’s Chairman Jerome Powell confirmed a guaranteed rate cut in July. At the same time, the US dollar has fallen against the basket of major currencies.
The macroeconomic factors such as these do not have a credible correlation with peculiar assets like Bitcoin. Nevertheless, the last two months have brought the two near one another. The cryptocurrency is visibly responding to the events taking place on a global scale. The US-China trade war, for instance, has reportedly sent investors looking for backup hedge havens like bitcoin, leading to the asset’s meteoric price rally of up to 79 percent in May, according to data provided by CoinStats cryptocurrency portfolio tracker.
The Fed rate cut, too, plays a vital role in determining the next bitcoin price trend. A common notion is that an interest rate hike is bad for the cryptocurrency since it strengthens the US dollar by reducing its supply in the market. The evidence is visible in last four rate increase in 2018 – from 1.75 percent in February to 2.5 percent in December – wherein the bitcoin price dropped by almost 50 percent in the US dollar-enabled markets – from $9,039 in February to $3,251 in December, according to Coinstats cryptocurrency portfolio management app.
Things to Notice
Let’s note that the bitcoin bear market had more than one catalysts behind it. The failure of a majority of ICO startups, the hacking of multiple cryptocurrency exchanges, regulatory crackdowns, were among the major factors behind its fall in 2018.
Nevertheless, the relationship between the bitcoin and its quoted currency, the US dollar, is likely to form an inverse relationship, given the cryptocurrency’s increasing exposure to the mainstream market. Financial behemoths like Fidelity Investments, TD Ameritrade, and Nasdaq are preparing to launch bitcoin investment products, which would expose bitcoin to institutional traders.
It would be safe to assume that bitcoin would move in tandem with the mainstream stock market following the rate cut. It should be a near-term scenario for investors to make the maximum out of bitcoin’s underlying volatility.
At the same time, those believing a recession is underway would hold bitcoin as their haven asset, reducing the overall selling pressure in the market.