Cryptocurrencies saw an increase as part of a broader market rally on Thursday, following the Federal Reserve’s decision to reduce interest rates by half a percentage point, the first such reduction in over four years.
According to Coin Metrics, the price of Bitcoin recently rose by 3.5%, reaching $62,417.48. This rise built on a rally already in progress prior to the central bank’s announcement on Wednesday. Initially, Bitcoin, similar to stocks, surged before pulling back as traders processed the news.
Ether, which has recently struggled to outperform Bitcoin, increased by nearly 5%. Solana’s token, a primary competitor of Ether, jumped 7.5%.
Stocks related to the price of Bitcoin also saw gains in early trading on Thursday. Coinbase, a Bitcoin exchange operator, advanced by 4%. MicroStrategy, often used as a high beta play on the price of Bitcoin, gained 5%.
Investor concerns have emerged regarding the significance of the interest rate reduction, speculating that the Federal Reserve’s decision to reduce rates by half a point, rather than a quarter point, indicates greater concern about the economy than the market suggests. Conversely, other investors are focused on how easier borrowing costs may increase liquidity and support prices.
Bitcoin operates as both a hedge and a risk asset and has shown a closer correlation with the Nasdaq Composite Index than with gold. Currently, Bitcoin is up 6% in September, a month typically considered its weakest. However, Yuya Hasegawa, a crypto market analyst at Japanese Bitcoin exchange Bitbank, cautioned about the potential impact of the Bank of Japan’s policy meeting, which commenced on Thursday.
Hasegawa noted, “The BOJ will likely maintain the policy rate this time, but indications of additional rate hikes could strengthen the Japanese yen and possibly trigger a yen carry trade reversal. This could result in a sell-off in the Japanese stock market, leading risk-off sentiment to spill into the crypto market.” He added, “Bitcoin has some time until the BOJ makes its decision and may extend its gains during Thursday’s U.S. session, with a short-term target around $65,000.”
