Potential Catalysts for a Crypto Bull Market Indicated by Past Rate Cuts

The Federal Reserve is anticipated to start decreasing its benchmark interest rate as early as September.

Insights from the Jackson Hole Symposium

During the annual Jackson Hole Symposium, the Federal Reserve Chairman Jerome Powell indicated that interest rate cuts are imminent. Following this announcement, Bitcoin’s price climbed above $63,000, and analysts predict that additional gains may follow once the Fed implements these cuts.

According to Leena ElDeeb, a researcher at 21Shares, earlier interest rate reductions have historically coincided with price increases in digital assets. She noted that lower interest rates allow investors cheaper access to loans, encouraging them to invest in higher-risk asset classes. As a reference, she recalled the significant effects of a past rate cut at the start of the COVID-19 pandemic:

“In March 2020, when rates were reduced by 150 basis points (bps) to near-zero levels, the total crypto market capital increased by around 450% by the end of that year, with Bitcoin’s price soaring by 200%.”

ElDeeb also emphasized that while past performances are not definitive indicators of future trends, the interest rate cuts of March 2020 may serve as a comparative benchmark for gauging the possible impacts of the upcoming rate decision on the cryptocurrency markets.

Market Signals from M2 Money Supply Changes

The 21Shares researcher also highlighted the fluctuations in the M2 money supply, which represents the total currency in circulation within the global economy, as a potential trigger for a Bitcoin price breakout.

ElDeeb pointed out that Bitcoin’s price often reaches its lowest levels months prior to the M2 money supply hitting its lowest point, followed by a swift increase. This surge typically outstrips liquidity growth before retreating in what she refers to as a “mid-cycle correction.”

She concluded by stating that Bitcoin exchange-traded funds (ETFs) act as an essential catalyst for price increases throughout the M2 money supply cycle.

Robust Institutional Interest in Digital Asset Investment

Despite a reported $528 million outflow from digital asset products during the week of August 3, there remains significant institutional interest in digital asset investment vehicles. This is evidenced by substantial inflows into BlackRock’s iShares Bitcoin Trust (IBIT) ETF and Fidelity’s Wise Origin Bitcoin Fund (FBTC), which attracted $20.3 million and $61.3 million, respectively.

The strong institutional interest is further supported by investment advisors who have increased their exposure to Bitcoin ETFs during the second quarter of 2024.