Bitcoin’s Struggles Amid Major Central Bank Easing

The Current Landscape for Bitcoin Amid Monetary Easing

Imagine if Bitcoin enthusiasts were informed that major Western central banks had initiated a fresh monetary easing campaign. Picture the S&P 500 and Nasdaq, despite a mini-panic mid-summer, comfortably hovering near record highs, while U.S. Treasury yields are plummeting to multi-year lows and gold has surged to unprecedented levels. Would this information pique their interest?

While there is ongoing speculation regarding whether the Federal Reserve will reduce its benchmark lending rate by 25 or even 50 basis points next week, one thing is clear: the U.S. central bank is on the verge of its first easing cycle since 2019. The Fed is not acting alone; it is joining a coalition of other significant Western central banks, including the European Central Bank, the Bank of England, and the Bank of Canada, all of which have already implemented interest rate cuts—some multiple times. Although Japan has yet to follow suit and has even begun to tighten its policies, its benchmark rate of 0.25% remains just above zero.

The response in traditional financial markets has unfolded as anticipated. Stocks, bonds, and the price of gold have all experienced a sharp uptick as a synchronized monetary easing campaign across developed markets gains momentum.

Bitcoin’s Current Struggles

Yet, Bitcoin (BTC) has not joined in on the rally. Although it experienced a commendable surge last Friday, its price still lingers below the $60,000 mark, approximately 20% shy of its all-time high of over $73,500 achieved just six months ago.

According to one insightful observer from CoinDesk, it’s essential to take a step back. Despite the significant pullback since March, Bitcoin remains up by more than 40% year-to-date and has appreciated 127% from levels a year ago. This apparent underperformance over the recent months may simply reflect a necessary pause following an extraordinary upward surge. When considering its performance in 2024 and over the past year, Bitcoin has outpaced both U.S. stocks and gold significantly.

However, taking an even broader view may be disheartening for Bitcoin bulls. Currently, Bitcoin’s value is substantially lower than it was nearly three years ago when it reached a then-record high of $69,000. When factoring in the rapid inflation of those three years, its performance appears even less impressive, especially for those who wish to tout Bitcoin as a hedge against inflation. In comparison, the S&P 500 has risen about 33% during this period, while gold, often deemed the “barbarous relic,” has climbed over 50%.

• Steno Research highlights that Bitcoin has not encountered many rate-cutting cycles, with only the one that commenced in 2019 being notable. During this period, Bitcoin actually fell approximately 15% from the time of the Fed’s first rate cut in August until the end of November, during which the Fed had cut rates by 75 basis points.
• It wasn’t until the massive monetary initiatives enacted in March 2020 due to the Covid-19 pandemic that Bitcoin finally reached a bottom and began its remarkable ascent.

It is plausible that a brief and lackluster series of rate cuts may have minimal effect on Bitcoin’s price. Only substantial, emergency-style measures from central banks might be sufficient to ignite a new bullish trend for the cryptocurrency.