Goldman Sachs now predicts the US Federal Reserve (Fed) will cut interest rates twice next year, revising its original forecast to a cut as early as the third quarter due to falling inflation. This monetary policy change could significantly impact Bitcoin, which is known for its resilience to economic fluctuations.
According to Goldman Sachs forecasts, the expected reduction in the federal funds rate to 4.875% by the end of 2024, compared to the previous forecast of 5.13%, indicates that monetary policy is more accommodative than previously expected. Despite strong US labor market data, focus has shifted to cooling inflation rates, fueling speculation of an earlier-than-expected rate cut. According to Goldman Sachs economist Jan Hatzius, the improving inflation outlook could accelerate the move to normalized cuts, although the US Federal Open Market Committee is likely to remain cautious in its approach. Adjust their forecasts.
For Bitcoin, these developments have special significance. Historically, Bitcoin has repeatedly shown diverse reactions to interest rate adjustments. A year ago, when the Fed raised interest rates by 50 basis points, Bitcoin dropped a notable 3.2%, reflecting its sensitivity to changes in monetary policy. However, according to the report, recent trends point to the crypto king’s greater resistance to such external pressures.
Despite facing headwinds from the benchmark 5% US 10-year bond yield and historically high US 2-year bond yields, Bitcoin has recovered notably. It broke through key technical resistance around the $28,000 mark in October, showing resilience in tightening economic conditions. Since then, Bitcoin has rallied 46% to consolidate above the $40,000 mark.
As the market anticipates an interest rate cut by the Fed, this situation presents a complicated scenario for BTC. Often mentioned in the inflation hedge debate, this digital currency may react differently to monetary policy easing than traditional markets. While lower interest rates typically boost risk assets, Bitcoin’s unique positioning and recent performance demonstrate its response may not be entirely consistent with conventional financial theories.
Analyst James Van Straten believes that an interest rate cut in 2024 will be reflected positively on Bitcoin price:
“In terms of initial concerns that Bitcoin might drop, similar to its reaction to important announcements such as COVID-related ones.
However, as Bitcoin follows the trend of global liquidity and accommodative monetary policies, its trajectory is generally upward and I expect a rate cut in 2024 to be in line with the trend This”.
This situation presents an intriguing moment for investors and enthusiasts in the cryptocurrency space. As the Fed looks to cool inflation with potential interest rate cuts, the impact on Bitcoin will be closely watched, offering insights into the growing interactions between digital currencies and traditional monetary policy.
