Bitcoin Will Rise as the Fed Cuts Interest Rates, but It's Not That Simple

Asked about the next catalysts for bitcoin, Iuorio said the Fed's interest rate cuts could provide a long-term boost for the coin as lower funding costs typically support more “risk-on” assets.

As the Federal Reserve continues cutting interest rates, bitcoin could experience a long-term boost due to the lower funding costs, which generally support more “risk-on” assets, according to Fundstrat Global Advisors.

“You have to assume that bitcoin will have a sensitivity to interest rates. If we think rates are going lower, that could be a tailwind for bitcoin,” said Fundstrat technical strategist Mark Iuorio, although he noted that bitcoin's notorious volatility hasn't always meant it behaves as expected.

However, Iuorio added that investors must look beyond interest rates when considering how they might affect bitcoin.

“To gauge how rates might affect bitcoin, we need to consider other factors like the business cycle, inflation and overall market sentiment,” said Michael Lie, Global Head of Digital Assets at Flow Traders. “Right now, U.S. rates are trending down, the U.S. economy is holding strong, and risk appetite is generally elevated. This combination could continue to push the bitcoin market higher in the short-to-medium term.”

Iuorio also highlighted America's growing debt problem, which is seen lifting bitcoin's status as a dollar hedge.

“The market is concerned about interest payments on our national debt and the potential of some debt spiral in the distant future,” said Iuorio. “Interest on debt will be $1.4 trillion [in 2025]. It's a line item on the federal budget, above defense and above all healthcare spending. That's making some people question if they are 100% confident in our fiat currency or global fiats, and if it's a good idea to consider different currency hedges. Bitcoin can be one of them.”