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How will the Fed's rate cut trigger a global asset frenzy?
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The 90-day correlation between Bitcoin and gold has risen from 0.12 to 0.35 in 2023, reaching 0.68 during the Silicon Valley Bank crisis. When interest rate cuts coincide with rising recession risks, the safe-haven value of crypto assets may be re-evaluated. A report by Grayscale pointed out that for every 1% drop in real interest rates, Bitcoin's valuation baseline may increase by 15%.
Historically, the Fed's rate-cutting cycles have often been accompanied by broad-based increases in asset prices. With easy liquidity and lower capital costs, investors' appetite for risky assets has increased - this is particularly evident in the crypto market.
The scarcity premium of fixed supply cryptocurrencies has become increasingly prominent amidst the backdrop of expected fiat currency debasement. This built-in deflationary property adds to its inflation-fighting appeal during rate cut cycles.
Lower interest rates have reduced yields in traditional financial markets, creating pressure for institutions to re-allocate. Long-term investors such as insurance companies, pension funds, and family offices may shift some of their capital to growth-oriented emerging markets. As regulatory infrastructure such as ETFs, custody, and auditing steadily mature, crypto assets are becoming increasingly viable for compliant investments. In the face of sluggish returns in traditional markets, institutions may include Bitcoin and Ethereum in their diversified portfolios.
By the end of 2024, the United States has approved the listing of multiple spot Bitcoin ETFs, which is a critical moment for institutional funds to openly enter the crypto market. If interest rate cuts coincide with the ETF boom, the dual momentum of institutional inflows and macro liquidity expansion may further amplify the upside potential of the crypto market.
