Past rate cuts indicate potential crypto bull market catalyst — 21Shares

The Federal Reserve is expected to begin lowering its benchmark interest rate in September.

Speaking at the annual Jackson Hole Symposium, Federal Reserve Chairman Jerome Powell sent his strongest signal yet that interest rate cuts are on the immediate horizon. The price of Bitcoin (BTC) rallied past $63,000 on the news, and analysts think further gains are expected when the Fed begins cutting rates.

Leena ElDeeb, a researcher at exchange-traded product issuer 21Shares, explained that previous interest rate cuts were good for the price appreciation of digital assets, as investors with cheaper access to loans take invest in risk-on asset classes. In a statement to Cointelegraph, the analyst gave a specific example of a previous rate cut at the beginning of the Covid-19 pandemic:

“In March 2020, when they cut rates by 150 basis points (bps) to reach near-zero levels, the total crypto market cap increased by about 450% towards the end of the year, and Bitcoin’s price surged by 200% in the same period.”

ElDeeb qualified her statements by explaining that while past performance is not a guarantee of future results, the March 2020 interest rate cuts could provide a benchmark to compare the likely effects of the impending rate cut on crypto markets.

Related: Bitcoin braces for Fed’s Powell as $61K BTC price eyes next breakout

Levels of the M2 money supply as a market signal

The 21Shares analyst also pointed to changes in the M2 money supply—a measure of the total currency circulating in the global economy— as a potential catalyst for a Bitcoin breakout.

ElDeeb noted that Bitcoin’s price usually reaches its lowest point several months before the M2 money supply “bottoms out,” before surging rapidly. This rapid price surge typically surpasses liquidity growth before pulling back in what the analyst described as a “mid-cycle correction.”

The analyst concluded by sharing her belief that Bitcoin exchange-traded funds (ETFs) were a “key catalyst” for price appreciation amid the M2 money supply cycle she described.

Institutional interest in digital asset investment vehicles remains high

Despite a $528 million outflow from digital asset investment products during the week of Aug. 3, institutional interest in digital asset investment remains high, as evidenced by strong inflows into BlackRock’s iShares Bitcoin Trust (IBIT) ETF and Fidelity’s Wise Origin Bitcoin Fund (FBTC) of $20.3 million and $61.3 million, respectively.

This strong interest in digital asset investment vehicles is also corroborated by the behavior of investment advisers, who increased their exposure to Bitcoin exchange-traded funds during the second quarter of 2024.

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