Rocket Fuel for Bitcoin? U.S Federal Reserve Cuts Interest Rates to Battle Coronavirus

The United States Federal Reserve cut interest rates in an emergency move on Tuesday, in a bid to protect the country’s fledgling economy from the impact of the coronavirus outbreak globally.

The move which market analysts have predicted since the start of February will see the central bank cut interest rates by a half percentage point (0.5%) to a target range of 1.00% to 1.25%.

Records reveal that it is the first such emergency action taken by the policymakers following an emergency meeting since the aftermath of the 2008 global financial crisis and comes well ahead of the Fed’s next scheduled policy meeting on March 17-18.

The Fed said in a statement:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate.

How is Bitcoin Affected?

The federal funds rate is the interest rate at which depository institutions such as commercial banks lend reserve balances to other depository institutions overnight without collecting collateral. Lowering the rate makes it unfriendly for these banks to hold fiat deposited by customers, and encourages the investing of these funds into the market.

Lower interest rates make customers resort to investing in the stock market, either in safe-haven assets like gold, or alternative assets like Bitcoin. Also worthy of note is the fact that the stock market is near its top, and the current coronavirus crisis makes investment in gold and alternative assets more attractive to investors in the long-term.

Meanwhile, Bitcoin at the time of writing has slightly dropped from its near $9000 price earlier in the day while the stock market is seeing new gains in response to the rates cut. Market performance in the coming days will reveal whether the rates cut could have some short-term effect on the price of Bitcoin, or whether the benefits will only be evident in the long-term.