Check Out These 5 Cryptocurrencies That Shine During Fed Rate Cuts

Apart from the numerous victims and pressure on the health sector, the outbreak of the COVID-19 pandemic at the start of 2020 resulted in vacated jobs, uncertainty, isolation, financial instability, and many other setbacks. Amid those gruesome conditions, the US government printed trillions of dollars to support the crippled economy. However, the increased money supply resulted in surging inflation rates, further problems for America’s fiscal policy, and a growing interest in crypto as an alternative investment.

The US Federal Reserve stepped in by enforcing multiple anti-inflationary measures, such as raising interest rates. Between March 2022 and July 2023, the central bank lifted the benchmark 11 consecutive times, with the current level standing at 5.25%-5.50%.

The latest data shows that inflation in the US has cooled off, meaning the Fed might soon pivot from its aggressive regime. In the following lines, we will observe how such a measure might impact the prices of some of the leading cryptocurrencies.

Here Are Some Crypto Coins :

Bitcoin (BTC)

The largest Cryptocurrencies in terms of market capitalization may significantly benefit once the Fed lowers interest rates. The move would make money borrowing easier, which might translate into increased interest in risk-on assets such as BTC. For its part, the potential flow of fresh capital into the asset can result in a surging price. 

The above is increasingly true now, following the introduction of spot Bitcoin ETFs earlier in 2024. This provides retail investors with familiar and comprehensive financial instruments to receive direct exposure to the price of BTC without having to worry about all the technicalities associated with storing it.

One famous person who believes BTC’s price will take off once the Fed pivots is Mike Novogratz. Until then, he sees the asset trading in the $55,000-$75,000 range.

Also Read – The Ultimate List: Top Altcoins To Buy Now Before They Take Off

Solana (SOL)

SOL experienced impressive price growth in the past year, briefly exceeding the $200 mark for the first time since December 2021.

Currently, the asset trades at around $177 (per CoinGecko’s data), a staggering 780% increase compared to the figure observed in May last year.

Solana’s ecosystem has witnessed significant activity. DefiLlama data shows that the total value locked on Solana stands at over $4.8 billion, while on-chain trading volume has been hovering around $1 billion for the past few months.

Solana is home to many retail investors because of its faster transaction times and cheap fees, creating grounds for potential increases should interest rate cuts start heating up the risk-on market.

Dogecoin (DOGE) and Dogwifhat (WIF)

Meme coins are often the cryptocurrency industry’s most volatile asset in the case of ground-breaking events. The leading asset of that type—Dogecoin (DOGE)—and the sensation built on the Solana blockchain—dogwifhat (WIF)—will definitely be worth watching should the Fed switch its strategy.

Both assets have devoted community bases, receiving support from prominent figures and leading cryptocurrency exchanges, and have been the subject of massive hype. 

DOGE is Tesla CEO Elon Musk’s favorite digital asset. Not long ago, the EV giant officially introduced the token as a payment method. For its part, WIF received backing from BitMEX’s co-founder Arthur Hayes.

Also Read – Looking for User-Friendly Crypto Exchanges? Check out These Top 5

Ethereum (ETH)

Another asset worth observing in the event of a Fed pivot is the second-largest by market cap: Ethereum (ETH). Its price has previously spiked following announcements that inflation in the US was cooling off or disclosures that interest rates would remain untouched (instead of raised).

For example, ETH has jumped by almost 10% since May 15 – the day when the US Bureau of Labor Statistics released the latest Consumer Price Index (CPI) data. Recall that total CPI clocked in at 3.4%, which is exactly what the expectations were.

Polka dot (DOT)

This popular blockchain protocol has completed numerous updates as of late, and as such, is also worth watching in case of increased volatility. Most recently, the team behind it enabled Asynchronous Backing on the network. It is an optimization technique designed to improve the process of parachain block production and inclusion in the Relay chain (the main chain of Polkadot).

Polkadot also unveiled the Join-Accumulate Machine (JAM) Gray Paper. It is a technical upgrade whose goal is to create a more efficient, secure, and scalable blockchain environment that integrates the best aspects of both Polkadot and Ethereum technologies.

Its price has been confined within a very tight range throughout the past few months, which is usually a precursor to considerable volatility. If the Fed decides to cut rates, this volatility might kick in, triggering a considerable move in Polkadot’s price.

• The COVID-19 pandemic led to massive economic disruptions, prompting the US government to print trillions of dollars, which resulted in high inflation.
• To counter this, the Federal Reserve raised interest rates to 5.25%- 5.50%.
• Lowering rates, on the other hand, could boost investment in numerous cryptocurrencies, with the Fed previously hinting at such a pivot.

Also Read – Know Everything About NeskBit Exchange

FAQs

1. What economic impact did the COVID-19 pandemic have in the US?

The COVID-19 pandemic caused numerous economic disruptions, including job vacancies, financial instability, and increased pressure on the health sector. The US government responded by printing trillions of dollars to support the economy, leading to high inflation rates.

2. How did the US Federal Reserve respond to rising inflation?

The US Federal Reserve implemented multiple anti-inflationary measures, including raising interest rates 11 consecutive times between March 2022 and July 2023. The current interest rate level stands at 5.25%-5.50%.

3. What might happen to cryptocurrency prices if the Federal Reserve lowers interest rates?

Lowering interest rates could make borrowing easier and increase interest in risk-on assets like cryptocurrencies. This might lead to a surge in the prices of leading cryptocurrencies such as Bitcoin (BTC), Solana (SOL), Ethereum (ETH), Dogecoin (DOGE), and Polkadot (DOT).

4. How could a decrease in interest rates affect Bitcoin (BTC)?

A decrease in interest rates could lead to increased borrowing and investment in Bitcoin, potentially driving up its price. The introduction of spot Bitcoin ETFs in 2024 has also made it easier for retail investors to invest in BTC.

5. What are some predictions for Bitcoin’s price in the near future?

Mike Novogratz, a well-known figure in the cryptocurrency space, predicts that Bitcoin’s price could trade between $55,000-$75,000 until the Federal Reserve changes its current strategy.

6. How has Solana (SOL) performed recently?

Solana (SOL) has seen impressive price growth, briefly exceeding $200 for the first time since December 2021. As of now, it trades around $177, marking a 780% increase compared to May of the previous year. The total value locked on Solana’s network stands at over $4.8 billion.

7. What makes Solana attractive to retail investors?

Solana is popular among retail investors due to its fast transaction times and low fees. These features could lead to further price increases if interest rate cuts stimulate the risk-on market.

8. What are meme coins, and why are they significant in the context of interest rate changes?

Meme coins, such as Dogecoin (DOGE) and Dogwifhat (WIF), are highly volatile cryptocurrencies often influenced by significant market events. Interest rate cuts could lead to increased activity and potential price surges for these coins.

9. How has Ethereum (ETH) reacted to economic data in the past?

Ethereum (ETH) has historically seen price increases following announcements of cooling inflation or decisions to keep interest rates steady. For example, ETH’s price jumped by almost 10% following the release of favorable Consumer Price Index (CPI) data in mid-May.

10. What recent updates have been made to the Polkadot (DOT) network?

Polkadot has implemented several updates, including the introduction of Asynchronous Backing to enhance parachain block production and the release of the Join-Accumulate Machine (JAM) Gray Paper to improve the network’s efficiency, security, and scalability.

11. What is the current outlook for the Federal Reserve’s interest rate policy?

The latest data indicates that inflation in the US has cooled off, suggesting that the Federal Reserve might soon pivot from its aggressive interest rate increases. This potential change could impact various asset classes, including cryptocurrencies.

Resources – Wikipedia & CoinMarketCap