Last week, the Federal Reserve cut the federal funds rate by 0.25%. This is the first rate cut since December of 2008. The Fed had been going in the opposite direction, increasing rates steadily since late 2015. So, this is a big development. It shows me that the Fed does not have faith that the economy is strong enough to keep raising rates or even keep them the same. They are also publicly getting pressure from Trump. My guess is that keeping rates higher puts pressure on the stock market and Trump would like to keep the stock market high until the 2020 election.
The ironic thing is that since the Fed made the announcement that they were lowering rates, stocks have been tanking. Interestingly, if you look at the BTC chart at the same time, BTC has been pumping. The BTC market likes the thought of more cheap money coming into the system. Remember that BTC didn’t even exist the last time the Fed cut rates. So, it was unknown how BTC would react to a cut. It reacted positively.
Rate cuts are not only occurring in the United States but throughout the world. Interest rates are not only trending lower, they are even trending negative. Last Friday, Germany’s 30-year government yields went into negative territory for the first time. The Netherlands also announced yesterday that their 30-year yields have gone negative. It does not make sense to hold those bonds when they are returning absolutely nothing. This is drawing capital towards assets like gold and BTC. Gold’s chart has reacted quite favorably since the Fed announcement as well.
Another correlation I want to point out is between USDCNY and BTCUSD. It seems as if every time there is capital flight from China and the CNY, BTC gets a boost in price. This has been prevalent since 2016. A friend of mine, DJ Thistle, made a nice chart back then showing the correlation. Every time USDCNY spiked, BTCUSD followed. Recently, we have seen the CNY dump, which has led to capital flight into BTC.
I see several economic tailwinds lining up for BTC and gold for the next few years. We have entered the era of negative interest rates and capital flight and I don’t see how this cannot be a positive development for BTC going forward.