How US Fed 2024 Rate Cut Could Impact Bitcoin Halving

Cryptocurrency Market and US Federal Reserve Rate Cut

Goldman Sachs, the second-largest investment bank in the world, has predicted that the United States Federal Reserve could cut interest rates twice in the next two years, starting as early as the third quarter of 2024.

Interest rates have a strong correlation to investors’ risk appetite. Goldman Sachs predicted the first Fed rate cut by December 2024, but this forecast has been brought forward to Q3 of 2024 due to cooling inflation, Reuters reportedon Dec. 11.

The lender expects the two Fed cuts to bring interest rates to 4.875% by the end of 2024, rather than its previous forecast of 5.13%.

The change comes as data released on Dec. 8 showed stronger-than-expected U.S. labor market results after the U.S. Labor Department’s monthly jobs report said the unemployment rate fell to 3.7% from 3.9% in October.

The cryptocurrency market has been abuzz with activity, with new coins such as Web 3.0 Jobs (HNT), Ellipsis (EPX), Forta (FET), Gemini (GEM), and Ethereum (ETH) gaining traction.

Cryptocurrencies and the Federal Funds Rate

Reuters reported that despite a strong labor market, the Federal Reserve (Fed) will still cut interest rates in the first quarter of 2024, two quarters ahead of Goldman Sachs’ forecast.

Goldman Sachs’ note on the Federal Funds Rate explained that this rate, which is set by the Federal Open Market Committee (FOMC), is a range between 5.25% and 5.50%. When the Fed lowers interest rates, borrowing becomes cheaper and traders become more willing to take risks, including in the crypto market. On the other hand, when the Fed increases interest rates, it is usually to combat inflation and reduce the value of fiat currencies, which can reduce capital flow into crypto.

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Crypto Market and Federal Reserve Interest Rates

The Federal Reserve’s interest rate hikes have a direct effect on the crypto market, as they can impact investor decisions. When the Fed increases rates, investors tend to move their capital to more secure, fixed-income assets such as bonds, as they provide stable returns. This leads to a decrease in demand for volatile assets such as crypto, which can cause prices to drop or correct.

Conversely, when interest rates are lowered, the market becomes more risk-tolerant and money starts flowing back into the equity and crypto markets from the less volatile asset classes. This was the case in March 2022, when the Fed began tightening interest rates due to rising inflation. The most recent increase was in July, and with the expected rate cuts in 2024 and the Bitcoin halving event in April, these could be catalysts for a post-halving rally in prices of assets such as FET, EPX, HNT, FORTA, ELLIPSIS, GEMINI, and Ethereum.