By Anthony Pompliano, compiled by Shaw Jinse Finance
To investors.
The market generally believes that the Federal Reserve will cut interest rates in September, which will drive up the prices of Bitcoin and other assets. After the rate cut, Bitcoin prices soared, right? At least that's what everyone on the internet says.
But history tells a more complicated story.
Binance Research just released a new study showing that the Fed's rate cuts, on their own, are not a reliable independent indicator of Bitcoin's price movements.
Remember, the data doesn't care about your feelings or opinions. The numbers are just numbers, nothing more.
Binance Research took a deep dive into the relevant data. They found that the United States has experienced three major interest rate cutting cycles since Bitcoin entered the mainstream in 2014. The study focused only on the 2019 and 2024 rate cutting cycles because the 2020 rate cut was triggered by a one-time global pandemic. So what happened when the Fed cut rates in 2019? Bitcoin exhibited a classic "buy the rumor, sell the news" pattern. In the months leading up to the rate cut, Bitcoin's price soared from around $4,000 to $13,000. However, once the rate cut was actually implemented, the price began to fall. The outlook for a rate cut in 2024 is less clear. The sharp rise in Bitcoin's price following the rate cut was closely tied to the evolving US election situation, making it difficult to attribute the price fluctuations solely to the rate cut itself.
Thus, while in 2019 we saw a decline in Bitcoin prices following the rate cut, by 2024, the drivers of Bitcoin's price increase appear more complex.
Binance Research subsequently conducted two quantitative analyses, both of which demonstrated a lack of a stable and significant correlation between interest rates and Bitcoin prices.
The first study compared the year-on-year change in the U.S. federal funds rate with the year-on-year change in Bitcoin prices. The analysis revealed no significant negative correlation between the two. The second analysis uses interest rate futures market data to measure market expectations of future interest rate changes and analyzes its six-month correlation with Bitcoin prices. The results again show that the relationship between the two is extremely unstable, indicating that market expectations of interest rate changes can hardly explain any linear fluctuations in Bitcoin prices.
So, if interest rates are not the driving force behind Bitcoin prices, what is?
Binance Research points out that liquidity is the key. They noted: "Historical data from the Chicago Federal Reserve Bank's National Financial Conditions Index (NFCI), a key indicator, shows a relatively clear negative correlation between the index's degree of tightening and Bitcoin price fluctuations. The index has recently shown an upward trend, which deserves market attention."
Therefore, while everyone is looking forward to the Fed's September rate cut, don't expect it to be the reason for Bitcoin's price to rise.
I am a Bitcoin supporter. I think Bitcoin will continue to rise. But after seeing this data from Binance Research, I will pay closer attention to all this.
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