The US Federal Reserve has just decided to cut interest rates (6:00 pm UTC), and Bitcoin price has experienced a mini bump to briefly ping on USD 10,000, signifying the positive sentiment for alternative stores of value when traditional ones seem to be in trouble.
The move had largely been expected, with all kinds of hints being dropped in the past weeks and months by the Trump administration and by officials at the US central bank. Nevertheless, confirmation that the interest rates would be cut by a quarter point still made markets all over the world tremble, as the US economy, already on heavy medication from a 2017 USD 1.5 trillion tax cut, embarks further down the path of quantitative easing.
Lindsey Piegza, chief economist at Stifel, said that this latest move would now severely and negatively impact the Federal Reserve’s balance sheet, who quoted officials saying that these were “unprecedented levels of debt being taken on by businesses”. It is clear that the official word doesn’t believe that there is a bubble, even though most objective and reputable analysts like those at Bloomberg feel that the path forward is getting even more treacherous.
So why did interest rates get cut after 11 years?
Basically, to feed a cycle of borrowing and spending, which has been on the rise in the past two years under its current Trump administration. To the outsider, the central bank could also be bowing to pressure from investors keen to see a booming stock market to continue its run. Not to mention, meekly bowing to the loud demands from the US president to put the economy on steroids just before next year’s presidential election.
USA Today insists the rate cut could not have come at a worse time, when the economy had other healthy signs: 224,000 new jobs in June, unexpected highs in retail sales for two consecutive months, and unemployment at below 4% for the first time in 50 years. And so, without any fiscal or economic rationale, these low rates would only hurt savers, bond investors, pensioners and Social Security.
Meanwhile, in the UK, the Financial Conduct Authority (FCA) has finalized its stance on crypto, with the issuance of the ‘PS19/22: Guidance on Cryptoassets’.” It is an update of the crypto assets consultation paper released back in January to gather public comment, with the intention of providing clarification to the regulations of all types of digital assets.
Bitcoin and Ether would appear to be completely exempt from regulations, being denoted by the FCA as “exchange tokens” that are “usually decentralized and primarily used as a means of exchange”. This places them outside of its regulatory scope and remit.
And, yesterday, when we talked about how Bitcoin was now entering a period of low volatility and low trading volume, this was a supposed sign of consolidation. For now, this still seems to be in play, but there are now analysts who believe that this daily trend of choppy price action is about to end.
CCN trader Kiril Nikolaev points out that the Bitcoin Historical Volatility Index (BVOL) has been declining ever since it punched a 14.06 high on 26 June from 4.38 — the same day of the 2019 current high.
More importantly, it had just been consolidating at around 2.00 for a month just before that spike. Nikolaev says this 2.00 level is key:
“Currently, BVOL is about to drop to 2.00, which is a level where bitcoin usually reacts. Most of the time, volatility favors the bulls when the index plunges to 2.00. However, there are instances when bears win the day and the index falls further.”
Tomorrow, Bitcoin will experience the first Fed rate cut in its history.
— Travis Kling (@Travis_Kling) July 31, 2019
Back to current sentiment, analyst Travis Kling notes quietly that tomorrow will be Bitcoin’s first experience of a US Fed cut, and others respond that this is almost like “the opposite of a halvening”. The likes of Anthony Pompliano have already predicted that this move would further push open the door to people seeking for more stable stores of values, ones that could not be printed or manipulated at will and at the whim of single individuals. And this could drive people to invest more in Bitcoin, creating a domino effect that would push price into a new parabolic move to register new and incredible highs.
Whether or not this will take months, years or decades, is all up for debate. As it is, the immediate impact is only noticeable by a tiny bump in the crypto markets, so it could be that people — investors or speculators — are not ready to make up their minds just yet.
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