Is the Fed Becoming More Receptive to Crypto? Potential Impact on Bitcoin (BTC) and VC Spectra (SPCT) Prices (2024)

FAQs

How will the Fed affect Bitcoin? ›

"If the Fed cuts rates solely due to inflation concerns in September 2024, it could be short-term bullish for bitcoin," Markus Thielen, founder of 10x Research, said in a note shared with CoinDesk.

If the Fed decided to include Bitcoin as an official form of money, it would increase both M1 and M2. Because Bitcoin can be used to purchase goods and services immediately, it would be included in M1 and would cause M1 to rise.

Experts suspect that the higher the CPI, the higher the pressure on cryptocurrencies. If the CPI increases and decreases at a significant and quick rate, it's a sign of volatility in the crypto market.

A higher interest rate environment can present challenges for the economy, which may slow business activity. This could potentially result in lower revenues and earnings for a corporation, which could be reflected in a lower stock price.

The U.S. Treasury yield curve's response to the expected soft CPI release might influence the broader market sentiment, including bitcoin. Slower inflation and increased rate cut bets can boost prices for the two-year note, sending its yield lower.

Rate cuts often signal a boost for crypto markets. Inflation data: Higher-than-expected inflation could drive more investors towards cryptocurrencies as a store of value. Big player adoption: Watch for large companies and financial institutions investing in crypto.

Is the US Going to Digital Dollar? As of June 2024, the US Federal Reserve has not decided to transition to a CBDC or supplement its existing monetary system with one. It is researching the effects a CBDC would have on the dollar, the US, and the global economy.

Bitcoin is a digital currency that can be transferred from one person to another without the use of a bank. Because it's unsecured it could easily be lost or stolen and is not insured by any government bodies. You might have heard about bitcoin because of the WannaCry ransomware.

Trump's only addendum to the government's current policies is to prevent the digital asset from being sold, and instead to hold it in what he deemed a “Bitcoin stockpile” – a nod to other caches the US maintains, such as the Strategic Petroleum Reserve and Strategic National Stockpile of medical goods, to shield itself ...

That's because the market understands that a lower CPI increases the odds that the Federal Reserve will loosen monetary policy. “Bitcoin investors see looser monetary policy as positive,” Fusaro adds, as it's understood the original cryptocurrency is a volatile, high-risk asset.

What happens to gold if CPI increases? ›

The reason why gold does not always react to the rises in the CPI is that the yellow metal is affected primarily by strong increases in inflation, while moderate increases in inflation or declining inflation do not materially impact the price of gold in either direction.

It is a key way to measure changes in purchasing trends and inflation. A higher than expected reading should be taken as positive/bullish for the USD, while a lower than expected reading should be taken as negative/bearish for the USD.

So, while rising interest rates may increase the U.S. dollar, pushing gold prices lower (because gold is denominated in U.S. dollars), factors such as equity prices and volatility coupled with general supply and demand are the real drivers of the price of gold.

However, some sectors stand to benefit from interest rate hikes. One sector that tends to benefit the most is the financial industry. Banks, brokerages, mortgage companies, and insurance companies' earnings often increase—as interest rates move higher—because they can charge more for lending.

The US is estimated to hold approximately 200,000 Bitcoin, worth around $13 billion, primarily obtained through forfeitures and seizures related to criminal cases such as the the former black-market website Silk Road.

“Based on the current market trend, it is possible that bitcoin may reach up to $100,000 by the end of 2024 and could potentially surpass $200,000 by the end of 2025,” Collins said. Unfortunately, he said it's unlikely bitcoin's momentum in 2023 and 2024 will continue indefinitely.

Known Bitcoin reserves held by governments account for 2.7% of the total 21 million supply of bitcoins, with the largest being the US Government with over 210,000 bitcoins worth more than $13bn at the time of writing.

Bitcoin's (BTC) price could benefit from the surprise interest rate cut since economists were split on whether the bank will cut or hold its interest rates steady. Easing monetary policy has historically boosted risk on assets like Bitcoin and Gold, yet Bitcoin price remains range-bound despite the interest rate cut.