Bitcoin and Crypto to Gain as Falling Rates Expand Global Liquidity, Says 21shares VP

The head of strategy at crypto investment firm 21shares has explained that the broad-based bitcoin selloff following the Federal Reserve’s decision to keep interest rates unchanged was partly due to increasing geopolitical tensions in the Middle East and fears of conflict escalation, leading to a temporary flight to safety. He also noted that anticipated interest rate cuts in September, November, and December could boost global liquidity and benefit risk assets like bitcoin.

Impact of Interest Rates on Bitcoin and Market Dynamics

Eliézer Ndinga, Vice President and Head of Strategy and Business Development at 21.co, the parent company of 21shares, shared his perspective on the impact of interest rates and market dynamics on bitcoin. 21shares is one of the world’s largest issuers of cryptocurrency exchange-traded products (ETPs). On Wednesday, the Federal Reserve decided to maintain the benchmark interest rate at 5.25% to 5.50%.

“Bitcoin traded down ~3% a day after the Fed held interest rates steady. The selloff was broad-based, with the Nasdaq, S&P 500, and gold also declining,” he said, adding:

A potential contributing factor to the selloff is the increasing geopolitical tensions in the Middle East and fears that the conflict may escalate. Thus, we are seeing a temporary flight to safety on the back of geopolitical uncertainty.

Ndinga highlighted the resilience of the U.S. bitcoin exchange-traded fund (ETF) market amid the broader selloff. “U.S. bitcoin ETF inflows remain strong despite the market selloff, with ~$170M net inflows in the past week and >$18B inflows since their launch in January,” he continued.

Addressing the outlook on interest rates, Ndinga noted market expectations for future rate cuts. “Regarding interest rates, the market is fully pricing in a rate cut in September and a ~90% probability of further rate cuts in November and December, per the CME Fedwatch Tool,” he said, concluding:

Falling rates may lead to global liquidity expansion, which is positive for risk assets like bitcoin and crypto.

How do you think the Federal Reserve’s decision on interest rates will impact bitcoin and the broader market? Let us know in the comments section below.