The economic forecasts indicating a likelihood of interest rate declines later next year represent a vital factor that could redirect the investment compass towards riskier and higher-yielding assets like digital gold Bitcoin. Lower interest rates reduce borrowing costs and increase the liquidity available in the global financial system, prompting investors to seek investment opportunities outside of low-yield bonds and deposits. Analysts from SoSoValue and CoinMarketCap see that Bitcoin benefits doubly from this trend; on one hand, its attractiveness as a hedge against potential inflation resulting from increased cash liquidity grows, and on the other hand, its appeal as a Growth Asset increases. In a high-interest environment, Bitcoin faces pressure as holding cash or bonds becomes more profitable, but as interest rates decline, the allure of digital gold sharply rises because it offers a potentially much higher return compared to near-zero interest rates. This is known as the 'opportunity cost effect' where the cost of forgoing fixed returns in favor of digital gold significantly decreases. The forecasts for declining interest rates often reflect either the success of central banks in controlling inflation or fears of an economic slowdown that requires monetary stimulus, both scenarios support Bitcoin. In the case of inflation control, optimism returns to the markets, and in the case of an economic slowdown, the demand for Bitcoin increases as a store of value away from the volatility of traditional assets. Major traders closely monitor any statements or economic data that support this trend as they recognize that the shift in monetary policy is the most important long-term driver for Bitcoin. TradingView data shows that traders have already begun to build bullish positions in anticipation of this future shift in monetary policy, and this shift affects not just Bitcoin but extends to Altcoins, which are more sensitive to available liquidity. The influx of money into Ethereum and large market cap coins significantly increases in a low-interest environment, confirming that the future of cryptocurrencies is closely tied to the upcoming shifts in global monetary policy.
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