Bitcoin Price Surge to $100K? Interest Rates Influence Explained

Generally, an increased influx of new dollars aimed at lowering interest rates tends to inflate the values of stocks and fixed-income securities.

Since the rise of cryptocurrencies, markets have discovered that this new asset class is particularly sensitive to interest rates, often showing an inverse correlation with them.

Identifying the Link: Bitcoin and Interest Rates

A recent article from the Fidelity Active Investor Learning Center indicates, “Although central banks do not have control over cryptocurrencies, some crypto analysts perceive that the US central bank may be indirectly impacting crypto prices.”

According to an SPGlobal report, the daily rolling three-month correlation between interest rates and the crypto index has shown an inverse relationship 63% of the time since May 2017. This correlation increases to 75% since May 2020.

China, Canada, and South Africa Approaching Rate Cuts

When the U.S. ceased the direct convertibility of dollars to gold in 1971 to avoid a significant outflow of the precious metal from its economy, it resulted in a market of free-floating exchange rates.

This change directly affects the profitability of imports/exports and trade balances between major global trading partners. Consequently, the Fed’s decision to lower rates creates opportunities for China to implement cuts.

Given the favorable US policies towards a Chinese interest rate cut and a deflationary trend in the yuan that is at risk of escalating, yuan analysts anticipate a shift in monetary policy there soon.

Bank of Canada governor Tiff Macklem recently stated in an interview that the nation’s central bank is prepared for more significant rate cuts than those introduced earlier this year.

Simultaneously, observers of the South African rand expect the Reserve Bank of South Africa to announce a cut in interest rates later this week.

‘Soft Landing’ Could Enhance ‘Hard’ Money Like Bitcoin

As the monetary experts at the Fed and other central banks prepare to guide economies into another soft landing, Bitcoin and other cryptocurrencies have reacted with optimistic enthusiasm.

BitMEX founder and crypto advocate Arthur Hayes recently expressed his belief that the rekindling of the USD money printer with new rate cuts will significantly elevate BTC’s price.

He underscored that the monetary effects on BTC will become apparent quickly and that the outcomes will be substantial.

“They will rev up the money printer and substantially increase the money supply,” Hayes noted. “This leads to inflation, which could negatively impact certain businesses. But for assets with a finite supply like Bitcoin, it will propel us at lightspeed to the Moon!”

Earlier this month, Hayes closed his short Bitcoin position, acknowledging that his profits were modest.