Information for your benefit

A reduction in interest rates is a decision made by central banks (such as the US Federal Reserve) to lower the cost of borrowing, measured by the interest rate imposed on banks when they borrow money from the central bank.

🔻 What does a reduction in interest rates mean?

It means that:

Borrowing becomes cheaper (for companies and individuals).

Saving in banks becomes less rewarding (lower returns).

Cash liquidity in the market increases (because people prefer spending or investing instead of saving).

💥 Its impact on cryptocurrencies

✅ Usually a positive effect:

Increased liquidity:

With more money available in the market, investors look for alternative assets with higher returns, such as Bitcoin and cryptocurrencies.

Weakened dollar (or traditional currencies):

Low interest rates lead to a weakening of the national currency, prompting some people to hedge using digital assets.

Price increases:

The entry of new investors and increased liquidity often lead to rising prices of cryptocurrencies.

🔺 Practical example:

When the US Federal Reserve lowered interest rates during the COVID-19 crisis in 2020, cryptocurrencies, especially Bitcoin, experienced a strong rise due to increased liquidity and decreased confidence in traditional financial systems.