Why the US Federal Reserve Rate Decides the Fate of Bitcoin and Altcoins

The discount rate is the interest that banks pay for borrowing from the central bank, and in the United States, this role is assigned to the Fed. You might think that the Fed and cryptocurrencies are two parallel universes, but in fact, everything is connected. To understand how one affects the other, you need to dive deeper into the banking system.

What does the US have to do with the global cryptocurrency market

The United States is the Mecca of the crypto industry. It's like Hollywood for digital assets: important new products and major players have gathered here. It's not for nothing that American exchanges such as Kraken and Coinbase are on everyone's lips, and the largest investment companies are based in the United States. The reason is simple: the dollar holds the mark of the world currency, and innovations are most often "hatched" here, although Asia is trying to get a head start.

But don't think that the decisions of other central banks have little impact on cryptocurrencies - yes, but the effect is more modest.

How are betting and crypto related

Investors are always on the hunt for money, and they don't care whether they make a profit through crypto or another asset. Bitcoin and altcoins are known for roller coasters in terms of value. With the Fed raising interest rates, the risk is no longer so attractive. After all, why take a risk with BTC, which can fall by tens of percent, if you can invest in something stable that will not collapse? The same high stakes in loans make borrowed investments less profitable, and high returns on deposits are a reliable and safe choice.

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Bitcoin and the Fed Funds Rate in September 2024

If the US central bank is a kind of crypto forge, why didn't the market soar to new heights after the rate cuts? Why hasn't Bitcoin broken the record? It's like a famous movie: the expectation is one thing, but the ending is completely different:

• In September 2024, after the Fed cut the rate, BTC rose by 7.6% to reach $66,500. Not a record, but nice. The rate dropped by 50 basis points to 4.7%-5%, which is still quite high for the US - it is the most "toothy" rate in the last 16 years.

• Everyone expected a rate cut, with discussions centered around a 25 or 50-point drop. Between September 6 and 18, BTC soared by 17.5%, gaining most of its growth before the Fed's decision.

• The mood on the crypto market is vibrating in time with the US election race. Expectations of the outcome are shaking the crypto industry more than changes in rates, forcing investors to play it safe.

• A rate cut is not always for the better. In 2007, the Fed also began to ease its monetary policy, and this resulted in the financial crisis of 2008. The lesson learned: investors do not rush to judgment and choose their steps carefully.

When the key policy rate falls, loans become cheaper. Investors have a growing appetite for risky assets, such as cryptocurrencies. If the rate remains high, more reliable investments, such as bank deposits, begin to attract investors with their stability.

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