Will Bitcoin Appreciate After Interest Rate Cuts?

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To investors,

The general consensus across markets is the Fed will cut interest rates in September, which will drive bitcoin and other assets higher. Cut rates and bitcoin flies to the moon, right? Well, at least that is what everyone is saying on the internet.

But history tells a much more complicated story.

Binance Research just published a new study that shows the Federal Reserve's rate-cutting actions are not, by themselves, a reliable standalone indicator for Bitcoin's price movements.

Remember, data doesn’t care about your feelings or opinions. The numbers simply are what they are.

And Binance Research went deep into the data. They show that since Bitcoin entered the mainstream in 2014, the U.S. has experienced three major rate cut cycles. The study focuses only on the rate cut cycles of 2019 and 2024, because the 2020 rate cuts were driven by a one-off global pandemic.

So what happened in 2019 when interest rates were cut?

Bitcoin displayed a classic buy the rumor, sell the news pattern. In the months leading up to the rate cut, Bitcoin's price surged from approximately $4,000 to $13,000. However, once the cuts were actually implemented, the price declined.

2024’s interest rate cut was a little less clear. The significant price increase of bitcoin following the rate cut coincided closely with shifts in the U.S. election landscape, making it difficult to solely attribute the price movement to the rate cut itself.

So 2019 we saw bitcoin go down in price after a rate cut and 2024 brought a more difficult picture of what drove bitcoin’s price higher.

Binance Research then conducted two quantitative analyses, both of which indicate a lack of a stable and significant correlation between interest rates and Bitcoin's price.

The first compared the year-over-year change in the U.S. Federal Funds Rate with the year-over-year change in Bitcoin's price. This analysis revealed no obvious negative correlation.

The second analysis used interest rate futures market data to measure market expectations for future rate changes and analyzed their six-month correlation with Bitcoin's price. Again, The results show an extremely unstable relationship between these two, indicating that market expectations for rate changes can explain almost none of the linear volatility in Bitcoin's price.

So if interest rates aren’t driving bitcoin’s price, what is?

Well Binance Research shows that liquidity is the key to everything. They write “Historical data from a key indicator—the Chicago Fed National Financial Conditions Index (NFCI)—shows a relatively clear negative correlation between the index's tightness and Bitcoin price volatility. The index has recently shown an upward turn, which warrants market vigilance.”

So while everyone is expecting an interest rate cut in September, don’t hold your breath for it to be the reason bitcoin goes up in price.

I am a bitcoiner. I think bitcoin is going higher. But after this Binance Research data, I’ll be watching all of this much more closely.

Hope you have a great day. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

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Bitcoin Destroyed The 60/40 Portfolio with Ric Edelman

Ric Edelman is the Founder of Digital Assets Council of Financial Professionals, and he is a New York Times #1 best seller of 13 different books.

In this conversation we talk about why financial advisors are finally getting excited about bitcoin, conversations they are having with their clients, the death of 60/40, gold, currency debasement, and why Ric has recommended having 10-40% exposure to bitcoin.

Enjoy!

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