The growth of Bitcoin (BTC) thus far this year has been hinged specifically on several macroeconomic indices. As market investors evaluate monetary policies from the United States Federal Reserve, they have managed to act cautiously all year.
This caution is showcased in the tight trading range in Bitcoin’s price since March. While the market has seen intense activity over the past 2 quarters, the remaining months might hold more trends to watch.
The US Dollar is on track to get a subtle hit with the potential rate cut from the Federal Reserve. With Chairman Jerome Powell hinting at this cut, stakeholders are watching what it would mean for the USD and Bitcoin.
The Genesis of US Dollar Frailty
While Bitcoin may be volatile, the US Dollar is a sensitive fiat currency. As the world’s reserve currency, it remains under considerable pressure from monetary policies. As crypto analyst CryptosRus rightly noted, the USD is weakening.
If the interest rate is cut, corporations will have relatively more operating cash flow. This is because they will spend less to acquire debt, giving them more cash. This principle also applies to households and everyone who is impacted by monetary shifts in general.
This excessive cash flow is not good for the Dollar. Under basic economic theory, excessive cash flow reduces the valuation of the Dollar, which might ultimately lead to inflation.
This trend is playing out like in the COVID-19 era. Several governments gave households free cash during this period to help deal with the pandemic fallout.
While these cash freebies brought goodwill with governments in the short term, the economic implications led to unbearable inflation. Statista states US inflation rose as high as 9.1% as of June 2022.
This figure compares to the 0.6% as of June 2020 before the palliative seeped into the populace.
US Inflation Data from June 2020 to July 2024
The resulting inflation led to rate hikes, from which the Federal Reserve is now trying to backtrack.
Bitcoin to Ride on USD’s Woes
Investors are generally more focused on preserving value. Once this value is preserved, they can then project to increase it. With a devalued Dollar, a new approach is important.
This is where Bitcoin comes in. The coin’s use case has evolved over the past decade. While Satoshi Nakamoto designed it as a means to send value in a Peer-to-Peer (P2P) setting, corporations like MicroStrategy now hold it as their reserve assets.
The logic is obvious since Bitcoin has a high growth rate compared to traditional assets. This growth is likely to become amplified if the Federal Reserve cuts rates and frees more money into the economy.
With Bitcoin maintaining an inverse correlation with USD—as the US Dollar decreases, BTC price increases—imminent price growth might be around the corner. At the time of writing, Bitcoin was trading for $59,034, down 20% from its All-Time High (ATH).
The catalyst needed to pare off this loss might rest on the paths the USD takes moving forward. Obviously, the Fed might be the next big enabler of Bitcoin in the coming weeks.
Spot Bitcoin ETF Advantage
Institutional investors need access to board the BTC train if the Feds raise interest rates and the dollar slips. Here is where the spot Bitcoin ETF product comes into play.
The Securities and Exchange Commission (SEC) validated the asset when it approved Bitcoin ETFs in January. Thus far, Morgan Stanley, Wells Fargo, and Goldman Sachs have sizable exposure to the product. However, a more dire monetary shift is needed to trigger a more mainstream adoption of Bitcoin.
The tide is changing in the global financial ecosystem, and the US is taking the lead. While the future of the US Dollar looks bleak, that of Bitcoin looks bright, with the immediate target being the previous ATH.
