A rate cut occurs when a central bank—such as the U.S. Federal Reserve—lowers its benchmark interest rate, effectively making it cheaper to borrow money.
Why Rate Cuts Tend to Favor Crypto Markets:
- Increased Liquidity
Lower borrowing costs inject more capital into the financial system, giving both individuals and institutions greater access to funds—some of which may flow into higher-risk, high-reward assets like cryptocurrencies. - Weaker Dollar, Stronger Crypto Appeal
Rate cuts can reduce the strength of the U.S. dollar, making dollar-denominated assets like Bitcoin relatively more attractive to investors seeking alternatives. - Shift Toward Risk Assets
In a low-interest environment, investors often pivot away from conservative instruments like government bonds in favor of growth-oriented assets such as cryptocurrencies. - Bitcoin as an Inflation Hedge
With rate cuts sometimes sparking inflationary concerns, Bitcoin’s capped supply leads some to view it as a digital store of value—similar to gold—making it more appealing during periods of expected currency devaluation.