Federal Reserve Chairman Jerome Powell gave the strongest signal yet that a rate cut is imminent in his speech at the annual Jackson Hole Symposium.
The news sent the Bitcoin (BTC) price above $63,000, with analysts expecting further gains if the Fed starts cutting rates.
Lina Eldip, researcher at exchange-traded product issuer 21Shares, explained that previous rate cuts have helped boost the price of digital assets, as investors with cheaper access to credit have seized the opportunity to invest in riskier asset classes. In a statement to Cointelegraph, the analyst gave specific examples of previous rate cuts that occurred at the beginning of the COVID-19 pandemic.
“In March 2020, when they cut rates by 150 basis points (bps) to near zero, the entire cryptocurrency market cap went up by about 450% by the end of the year, while Bitcoin’s price soared by 200% over the same period.”
Eldip elaborated on his statement, explaining that while past performance does not guarantee future results, the March 2020 rate cut could provide a benchmark against which to compare the impact of an impending rate cut on the cryptocurrency market.
Table showing current interest rates. Source: Federal Reserve
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M2 Money Supply Level as a Market Signal
21Shares analysts also pointed to changes in M2 money supply, which measures the total amount of money in circulation in the global economy, as a potential catalyst for a Bitcoin rally.
Eldip noted that Bitcoin’s price typically hits a low a few months before M2 money supply “bottoms out,” and then surges. This rapid price surge typically outpaces liquidity growth before retreating in what the analyst describes as a “mid-cycle correction.”
The analyst concluded by sharing his belief that Bitcoin exchange-traded funds (ETFs) are a “key catalyst” for price appreciation within the M2 money supply cycle.
Institutional interest in digital asset investment vehicles remains high.
Despite $528 million in outflows from digital asset investment products in the week of August 3, institutional interest in digital asset investments remains high, as evidenced by the massive inflows into BlackRock’s iShares Bitcoin Trust ETF and Fidelity’s Wise Origin Bitcoin Fund, which saw $20.3 million and $61.3 million, respectively.
Weekly inflows into institutional digital asset investment vehicles. Source: CoinShares
This strong interest in digital asset investment vehicles is also evidenced by the actions of investment advisors who increased their exposure to Bitcoin ETFs in Q2 2024.
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