The European Central Bank (ECB) recently announced a rate cut of 25 basis points to 3.75%, marking the first reduction in the key interest rate since September 2019. This shift in monetary policy came after nine months of keeping rates steady at a record 4%. The decision was based on an improved inflation outlook, with the ECB staff raising their 2024 headline inflation forecast to 2.5%. Despite inflationary pressures in the eurozone, the ECB believed it was appropriate to moderate the degree of monetary policy restriction at this time. The rate cut decision puts the ECB ahead of the U.S. Federal Reserve in easing monetary policy.
It is expected that there may be a follow-up rate cut by September if discussions in the next ECB meeting in July go well. This decision was supported by all but one of the 20 national representatives on the ECB’s Governing Council, with President Lagarde not disclosing details about the dissenting member during the press conference. The rate cut has broader implications for the cryptocurrency market, as lower interest rates tend to make cryptocurrencies more attractive to investors. Historically, similar monetary policies have been bullish catalysts for crypto assets like Bitcoin and Ethereum.
The ECB’s rate cut comes at a time when positive developments in the crypto sector, such as Robinhood’s acquisition of Bitstamp, are further aiding the narrative of an imminent bull run. The rate cut could also impact traditional equity markets, with potential positive spillover effects for Bitcoin as liquidity shifts towards riskier asset classes. Market analysts suggest that the rate cut could uplift the crypto market, especially if followed by subsequent rate reductions later this year as some economists predict. However, the impact of the rate cut may be limited as markets had already priced in the 25 basis point move.
New data published by Philip Swift of LookIntoBitcoin indicates that Bitcoin could benefit from a record-high global liquidity, with the world’s M2 money supply standing at $94 trillion. This is $3 trillion higher than when Bitcoin surpassed $69,000 in 2021. The new all-time high in global liquidity could potentially boost Bitcoin’s current bull run. Bitcoin is currently trading at $71,052, up by 2.54% for the week. Overall, the ECB’s rate cut and the positive developments in the crypto sector are driving optimism for the future performance of cryptocurrencies like Bitcoin.
