Fed rate cut sparks Bitcoin surge, China follows

As global central banks begin shifting their monetary policies from tightening to easing, Bitcoin has experienced a significant boost. The Federal Reserve's (Fed) recent rate cut has spurred a notable rise in Bitcoin prices, while similar moves by other central banks, including the People’s Bank of China (PBoC), have had less of an impact.

Fed Boosts Bitcoin

On September 18, the Fed implemented a significant 50 basis point interest rate cut, marking the official end of its aggressive rate-hike programme that began in 2022 to combat inflation. This move was immediately felt in the cryptocurrency markets, with Bitcoin surging by 5.2% within 24 hours, according to data from blockchain analytics firm Kaiko.

The influence of the Fed’s decision stood in stark contrast to the reaction following similar actions by the Bank of England (BoE) and the European Central Bank (ECB). When the BoE cut rates on August 1 and the ECB followed on June 6, Bitcoin actually saw declines of 6% and 4%, respectively. Kaiko attributes this disparity to the overwhelming dominance of USD-backed stablecoins, which now account for 91% of the stablecoin market. These stablecoins provide liquidity to the crypto market and seem to tie Bitcoin’s performance more closely to U.S. monetary policy than to decisions made by the UK or Europe.

Bitcoin response to central bank rate cuts, per Kaiko

This rate cut by the Fed has reignited optimism within the crypto sector, with some analysts forecasting a potential "risk-on" shift among investors, favouring assets like Bitcoin as central banks transition to quantitative easing. The shift away from rate hikes may signal a renewed interest in speculative assets, benefiting Bitcoin in particular.

China Joins the Easing Trend

In response to economic pressures, China’s central bank, the People’s Bank of China (PBoC), unveiled its own set of quantitative easing measures just days after the Fed’s action. The PBoC aims to stimulate its economy and rebuild consumer confidence through a series of liquidity-boosting actions. These measures include a reduction in the seven-day reverse repo rate from 1.7% to 1.5% and a 0.5% decrease in the reserve requirement ratio for banks, which effectively frees up more cash for lending.

The Chinese government’s plan is to inject approximately RMB 1 trillion (around $142 billion) into its financial system, according to reports from the Financial Times. This effort is intended to combat slowing growth and provide liquidity to an economy still facing challenges in recovering from the pandemic.

However, despite these actions, Bitcoin's price has remained largely unaffected by China's monetary easing, experiencing only a slight drop of 0.1% within the last 24 hours at the time of writing. This underscores the fact that U.S. monetary policy continues to exert a much stronger influence on the cryptocurrency market than developments in other parts of the world, including China.

Conclusion: US Dominates Crypto Sentiment

While central banks around the world are easing their monetary policies to stimulate economic growth, the cryptocurrency market, particularly Bitcoin, remains highly sensitive to U.S. actions. The Fed’s recent rate cut has provided a significant boost to Bitcoin, while similar measures from Europe and China have had minimal impact. This reflects the deep integration of U.S.-backed stablecoins within the cryptocurrency ecosystem, making Bitcoin's fortunes closely tied to U.S. policy decisions.