The financial landscape in the United States over the past few years has remained uncertain per Fed rate cut and hike expectations. The emergence of COVID-19 and its accompanying economic woes forced the Federal Reserve to deploy its most hawkish policies to stem inflation.
After a series of interest rate hikes to battle inflation, there are now signs of progress. With these improvements, a Federal interest rate cut is expected as early as September. If the Federal Open Market Committee (FOMC) succeeds in doing this, it will have a massive impact on the crypto stock market.
Here are 5 major impacts to expect in this sector moving forward.
Fed Rate Cut To Trigger Excess Liquidity Flow
If the interest rates are lowered, as some Federal Reserve officials have hinted recently, it might cause a bump in corporate liquidity. During hawkish market conditions, the cost of borrowing is high, with the reverse recorded when the rates are lowered.
Since big institutions will pay less for borrowing, crypto stock market players can benefit. Firms like Marathon Digital and Riot Platforms will have excess cash flow, which might be used to solidify their operations. Firms like MicroStrategy, with a robust debt offering profile, will also find it convenient to issue senior notes to buy Bitcoin.
Attractive Crypto Stock Market Valuation
When rates slips, it might boost the valuation of growth-centric firms. With easier credit access, crypto stock market players may also have enough access to top up their inventories, boosting their overall outlook.
Tech Stock Valuation Locking
Any potential US Fed rate cut can trigger a sustained boost for tech stocks. As a major intersection between the stock market and the crypto industry, top AI firms like NVIDIA may lock their impressive valuations.
Beyond NVIDIA (NVDA), MicroStrategy (MSTR), Coinbase (COIN), and other related stocks have recorded a positive year thus far. Since the price of Bitcoin has sustained a rather bullish trend thus far, these crypto stocks have rallied alongside. A lowered monetary rate will serve as a major anchor owing to corporate operational flexibility concerning funding.
US Dollar Devaluation
The Fed rate cut impacts will ultimately reflect on the United States Dollar. This is arguably the most important downturn that might trigger a 2020-like event.
In the heat of the COVID-19 pandemic, governments worldwide handed out palliatives, fueling excess cash flow. This reduced the purchasing power of fiat currencies around the world. Should there be a rate cut, the Feds must prepare for any potential fallout for the USD.
Bitcoin Wins At the End
With a lowered rate, legacy financial products become less attractive. This is paving the way for spot Bitcoin and Ethereum ETFs to shine.
These crypto products track the prices of BTC and ETH, two assets known to have very positive growth tendencies. In the long term, Bitcoin has proven to outshine the S&P 500 and other Treasury Bills. Notably, If the Fed rate cut comes as planned, spending will grow. This will in turn fuel inflation, pushing the attractiveness of BTC as a viable inflation hedge.
Though Morgan Stanley has unveiled exposure to Bitcoin ETF, any monetary move might see more mainstream adoption in the long term.
Read More: Bitcoin To Hit $1 Mln Post US Fed Rate Cuts, Predicts Fred Krueger
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