In a span of 24 months, Bitcoin saw a substantial increase of 12-fold, last achieved during Trump's presidential tenure.
Unleashing the Bullish Wave: Could History Repeat for Bitcoin with Trump's Pressure on Powell?
Once more, ex-President Donald Trump has his sights set on the Federal Reserve (Fed) Chair, Jerome Powell, urging him to trim interest rates. Back in 2019, a similar situation led to a staggering twelvefold increase in Bitcoin's price over a span of two years.
Ordinarily, the Fed, with its independent status that separates it from the federal government or Congress, holds the power neither to dismiss the Fed Chair nor to alter monetary policy at will. However, Trump's relentless calls on Powell in 2019 seemed to hit home, prompting the Fed to execute a short-term rate cut. It appears that history could be repeating as the present situation unfolds.
Trump's Persistent Push
Trump has wrestled directly with the Fed's policy decisions, employing a blunt and sarcastic tone to instinctively nudge Powell towards yielding to lower interest rates. This Bull in the China Shop (April) approach set waves of anxiety across the S&P 500 index, plunging it by 2.5%.
Nostalgia and New Horizons for Bitcoin
Recently, as Trump trumpeted his disappointment and desperation over a potential economic slowdown on his Truth Social account, he appealed to Powell, urging him to, "act now," saying things like, "Hey Powell, you're a total loser." This volatile rhetoric further ignited the notion of America embracing Bitcoin as a reserve currency, ratcheting up global competition for the cryptocurrency.
In theory, slashing interest rates could once more catapult Bitcoin's price. In 2019, Bitcoin was trading at around $5,000. After the Fed slashed interest rates to zero, Bitcoin's price toppled $60,000 in the subsequent twelve months.
By the last Friday of April, Bitcoin had breached the $95,000 mark, leaving investors salivating over a potential $100,000.
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The Connection between Bitcoin and Interest Rates: A Deeper Gaze
To better understand the ties between Federal Reserve interest rate cuts and Bitcoin's performance, delve into these key dynamics:
- Affordable Borrowing Costs: Lower interest rates decreasing the cost of financing investments could attract investors to riskier ventures, such as the cryptocurrency market. With mounting capital flooding in, Bitcoin's price could soar as demand rises.
- Growing Economic Slowdown: Interest rate cuts are usually reactions to economic slowdowns. During these times, investors hunt for valuable assets, considering Bitcoin as a hedge against inflation and safe haven in times of financial instability.
- Enthusiasm for High-Risk Investments: Slashed interest rates amplify the allure of riskier investments, jolting investors to diversify their portfolios and pump more capital into Bitcoin and other cryptocurrencies.
- Sagging Dollar Power: Reduced interest rates tend to weaken the U.S. dollar, making dollar-denominated assets like Bitcoin more inviting to foreign investors. This doesn't always hold true though, as global economic factors come into play.
Precedents in History
- 2020: During the pandemic-induced economic turmoil, Federal Reserve actions, including interest rate cuts and quantitative easing, triggered a roller coaster of market volatility. Bitcoin's price veritably plummeted initially due to general market panic but bounced back strongly afterwards.
- 2024: Rate cuts in September and December kick-started a crypto-rally, bolstering the belief that such monetary policy adjustments support riskier assets like Bitcoin.
This said, Bitcoin's volatility is affected by a multitude of factors outside the scope of Fed actions, including global economics, regulatory regulations, and technological advancements.
- In a surprising turn of events, Donald Trump, former President, is repeatedly pressuring Jerome Powell, the Federal Reserve Chair, to decrease interest rates.
- The consequences of such pressures could potentially mirror the past, where similar circumstances led to a massive increase in Bitcoin's price by a factor of twelve over two years.
- Trump's persistent criticisms of the Fed's policies, delivered with directness and mockery, have caused unease within the S&P 500 index, causing it to dip by 2.5%.
- The ongoing rhetoric from Trump has stoked the idea of America adopting Bitcoin as a reserve currency, which would intensify the competition in the global cryptocurrency market.
- If interest rates are indeed reduced, it could trigger a surge in Bitcoin's price, as it did in 2019 when Bitcoin's value skyrocketed from around $5,000 to over $60,000 within a year of the Fed slashing interest rates to zero.
- Interestingly, by the end of April, Bitcoin had reached a striking $95,000, leaving investors speculating about a potential price of $100,000 in the near future.
