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Cryptocurrency Uptick: A Result of Federal Reserve’s Interest Rate Cut?
Galaxy Digital’s CEO and founder, Mike Novogratz, who is a known cryptocurrency enthusiast, recently expressed his views about the future of cryptocurrencies on CNBC cryptocurrency news. He touched upon the speculated timing for a potential uptick in cryptocurrencies and related it to the Federal Reserve’s projected decision to lower its interest rates, a measure implemented since last March to curb inflation. According to Novogratz, this decrease could commence in October.
Predicting the Cryptocurrency Upswing
According to Novogratz, the decision of the Federal Reserve to reduce interest rates will act as a catalyst for the growth of Bitcoin price, Ethereum, and other cryptocurrencies. These reductions can boost liquidity in the financial markets, and bull seasons in risk markets generally follow suit.
Novogratz stated that if a significant slowdown occurs during the latter half of the year as he predicts, the Federal Reserve may reduce rates by October, thereby causing a surge in cryptocurrencies.
Predicting the Federal Reserve’s Interest Rate Cuts
Novogratz inferred from the Fed Chairman’s statements that a reduction in interest rates might be expected within a 9-12 month timeframe. Should the peak be this month, the decrease could be anticipated in the first or early second quarter of next year. Historical data reveals that a decrease typically occurs six months following the announcement of the interest rate peak. However, the market sentiment as suggested by FedWatch indicates that reductions might commence in the last quarter of this year. Responding to this, Powell commented that market expectations of inflation decreasing faster than their projection resulted in expectations of an interest rate cut before year’s end.
However, several Fed members recently proposed the possibility of skipping an interest rate hike in June and then raising it again later if needed, contradicting Powell’s earlier stance.
Powell had previously asserted that the Federal Reserve would not raise interest rates once they stopped doing so. He stressed their cautious approach because while the issues caused by excessive tightening could be handled with their tools, the implications of early easing would be detrimental to the economy.
These contradictory stances should be understood as being temporary, given the equally significant impact that the given messages have on the market as the actual rate hikes.
Why the Expected Cut?
Novogratz explained his expectation for a rate cut by citing that the numerous interest rate hikes would affect the US economy. He warned that the ensuing banking crisis would halt loans to small businesses, leading to repercussions in the unemployment rate. He expects the Fed to adopt a very different tone by October, acting as a catalyst for the rise of assets like gold, silver, Bitcoin, and Ethereum.
As business bankruptcies have been noticeably increasing, Fed members are beginning to observe the impact of the interest rate hikes. Only time will tell if Novogratz’s predictions come to fruition.
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