The cryptocurrency market is known for its high volatility, and one of the macro factors that has the greatest impact on it is the interest rate policy of the United States. Recent statements from Treasury Secretary Scott Bessent indicate the Trump administration's direction toward lowering interest rates, and this could have significant effects on Bitcoin and other digital assets.
Signal of interest rate cuts from the Trump administration
The Treasury Secretary, in an interview with Bloomberg, affirmed President Trump's wish to lower interest rates. Mr. Bessent criticized the Federal Reserve (Fed) for making a 'serious mistake in 2022' by raising rates too late, and now seems to be 'hesitant and awkward' in addressing the issue.
The administration's preparation to propose a successor to Fed Chairman Jerome Powell in the coming weeks and months, especially with a 14-year vacancy in January, indicates a high likelihood of a change in monetary policy. A new chairman with a 'dovish' stance (favoring low interest rates) may accelerate the process of monetary easing.
Why are low interest rates good for cryptocurrencies?
When interest rates are low, borrowing costs become cheaper, encouraging businesses and individuals to borrow money for investment and business. This flow of capital can move into riskier investment channels such as stocks and especially cryptocurrencies, which are seen as highly speculative assets.
Low interest rates also decrease the attractiveness of traditional investment channels such as bonds or savings accounts, prompting investors to seek higher returns in other markets. Cryptocurrencies, with their potential for superior growth, often become an attractive option in this environment.
Conversely, when interest rates rise, borrowing costs become more expensive, reducing investment motivation and potentially causing capital to flow out of riskier assets. This often leads to a decline in the cryptocurrency market.
Potential impact on the cryptocurrency market
President Trump's desire to lower interest rates, along with the forthcoming nomination of a new Fed leader, sends a clear signal about the potential for monetary policy easing in the future. If this occurs, the cryptocurrency market could receive a significant boost.
Although Secretary Bessent also mentioned preparing tax legislation aimed at reducing taxes for middle-class families and incentivizing businesses, as well as the nearing completion of trade negotiations, the interest rate policy remains the most direct and powerful factor influencing sentiment and capital flow in the cryptocurrency market.
Whether the Fed will take action to 'look down at its feet,' as Secretary Bessent put it, or will change course to respond to President Trump's desire to lower interest rates will be something the cryptocurrency community needs to closely monitor in the coming time.