For the first time since the Great Recession in 2008, the Federal Reserve’s Open Market Committee has cut interest rates.
While this is a decision made by an authority in the fiat money world, prominent crypto analyst Thomas Lee suggests that it’s entirely bullish for Bitcoin.
A Brief History Lesson
For those not versed in basic macroeconomics, here’s a brief recap. To stimulate the crumbling economy in the wake of the Great Recession, the Federal Reserve, also known as the Fed, cut rates. The idea here is to promote borrowing.
This stimulus worked, with the stock market and economic indicators bouncing back in the coming years. By the time the economy had recovered, rates were effectively 0%, which, for obvious reasons, isn’t sustainable.
Thus, the Fed started hiking rates in 2016, starting what is known as a tightening cycle, raising rates as other central banks kept rates low. In fact, as the Fed raised its rates above 2%, some central banks, like the Bank of Japan, took rates negative for the first time seemingly ever, meaning that consumers had to pay to store capital in retail banks.
Donald Trump and other economic pundits have since bashed the Fed, as some fear the gap between global rates can create some financial risk and may actually hurt the American economy.
So, on Wednesday, the Fed cut for the first time since the last recession. But it is still unclear whether or not the leading monetary authority will continue this “easing” policy into 2020.
Bullish for Bitcoin
According to Thomas Lee of Fundstrat Global Advisors, this cut is entirely bullish for Bitcoin. Speaking to Fox Business, the popular analyst explained that the liquidity brought with rate cuts should force investors into assets like Bitcoin, likely touching on the fact that the decade-long run that stocks have seen was seemingly catalyzed by the low rates. Lee added:
“Bitcoin’s becoming increasingly a macrohedge for investors against things that could go wrong. Rate cuts are adding liquidity. Liquidity is pushing money into all these risk assets and also hedges, which is helping Bitcoin.”
Indeed, low interest rates have historically coincided with risk-taking in markets. And, in the eyes of most, BTC is currently a “risk-on” asset, as exhibited by its volatility. Lee continued, remarking that Fundstrat is still eyeing $20,000 and beyond as a year-end Bitcoin price target.
Per previous reports from Blockonomi, the analyst suggested that Trump’s tirade against cryptocurrency, the launch of Libra, and certain macroeconomic risks could set Bitcoin on a track to reach $40,000 by December.
Global Risk of Recession
The rates, some fear, may not do much to stop the incoming recession, which is likely to aid Bitcoin’s adoption as a proper store of value.
You see, despite the stimuli, European banks are on the verge of collapse, as made overly evident by the five-year 90% collapse of Deutsche Bank’s shares, similar losses in Italian and Spanish banks, and the fact that economic indicators have started to trend lower. Ray Dalio, one of the most well-respected investors on Earth, touched on the fear of a recession in an interview earlier this year:
“There are a lot of parallels between now and the late 1930s. From 1929 to 1932 we had a debt crisis — interest rates hit zero. Then there was a lot of printing of money, and purchases of financial assets brought their prices higher.”
And, as detailed by this outlet on multiple occasions, a growing number of respected investors and economists have begun to acknowledge that Bitcoin is an alternative to gold. Gold, of course, is a logical purchase going into recessions, as it acts as store of value, preventing inflation from rendering it worthless. So, should a recession hit, especially one fueled by the irrationality of central banks, Bitcoin could outperform.