BitOffer Institute: Emergency Step of Cutting Interest Rate Taken by FED, Another bull for Bitcoin?
The Federal Reserve on Tuesday took the emergency step of cutting the benchmark U.S. interest rate by half a percentage point, an attempt to limit the economic and financial fallout from the coronavirus. Since the financial crisis in 2008, the reduction of this time was the largest, which was considered as the bailout to the market. Even though, America Stock Market did not buy it. After the news released, the Dow Jones Index dropped by nearly 800 points (3%). In the short term, the decline of the America Stock Market has decreased by more than 10%.
Powell held a news conference following the central bank’s decision to cut overnight interest rates by half a percentage point. He said the Fed “saw a risk to the economy and chose to act.”
“The magnitude and persistence of the overall effect on the U.S. economy remain highly uncertain and the situation remains a fluid one,” he said. “Against this background, the committee judged that the risks to the U.S. outlook have changed materially. In response, we have eased the stance of monetary policy to provide some more support to the economy.”
Under the background of COVID-19, the fear caused the capitals to be called back from the market, which pushed the market to face the shocking situation, especially the stock market of Europe and America. As the stock market has been through the worst month since the last financial crisis, what kind of investments are investors able to follow while the stocks and golds performed unexpectedly?
Lucian, the Chief Analyst of BitOffer, pointed out “The interest cut this time was the proof of that how serious the problem was. The last emergency interest reduction happened on Oct 8th,2018 because of the economic recession caused by the Collapse of Lehman Brothers. So, it is obvious that FED holds a serious attitude to the current situation they meet.
First, COVID-19 brought new challenges and risks to the global economy and made the financial market turbulent. In addition, it does significant impacts on the global industry chain and the operation of the supply chain, which also does harm to the economy of the United States. However, the interest cut was helpless to the problems of the supply chain.
Besides, the recent US Treasury yields have created the lowest level in the past 100 years. If FED continues cutting the interest, it would drop down the US Treasury yields further. Once it happens, the central banks of other countries and the institutions would start selling US Treasury. Including but not limited to the America Stock Market, when investors are worried about the economy of the United States, the capitals will choose to act in the way of “Cash Out” and seek other investments such as gold and Bitcoin to hedge the risk.
Due to the reason that digital assets like Bitcoin have not been adopted in the portfolio of worldwide institutions, its time-sensitive to react to the interest reduction on Tuesday was limited. The effect on the Bitcoin market should happen in the medium and long term.
Moreover, the 3rd halving of Bitcoins is expected to happen in May. On the occasion, the block reward of Bitcoin Mining will be reduced from 12.5 to 6.25. The scarcity will directly lift up the value of Bitcoin. In other words, the upcoming halving of Bitcoins is the catalyst to push the Bull market to come out.
Why Do People Prefer to Buy Cryptocurrency ETF than buying Bitcoins?
Bitcoin, which owns the most recognition in the cryptocurrency industry, theoretically doubles the price after halving. Also, the upgrade of the miner machine is able to double the price due to it increases the budget. Due to the miner machine upgrade, the improving of hash rate makes the possibility of mining disaster become low. So, after the halving, the bitcoin price is likely to increase by 4 times. Takes the bitcoin price $9,000 as the basis, it may rise to a level that more than $30,000.
If you buy Bitcoins on the spot trading market and hold it, when the bitcoin price rises to $30,000, you would earn a 3-times payoff. However, if you buy Bitcoin ETF launched by BitOffer, the highest payoff would be able to reach 17 times due to its automatic positions adjustment mechanism and its compound calculation, which means that its ROI would be much higher than that of Bitcoins on the spot trading market. For investors who prefer long-term investments, Bitcoin ETF has become a much better choice.