Federal Reserve Cuts Rates to 0% as Bitcoin Follows Stocks

  


The Federal Reserve has cut its benchmark interest rate to zero in a bid to revive the American economy amidst growing Coronavirus fears. Meanwhile, Bitcoin is trading in lockstep with the US stock market as correlation between the two reaches an all-time high. 

Crashing Economy, Crashing Bitcoin

Sentiment and activity in the global economy are at a 10-year low. 

From 2008 to 2016, the American central bank kept benchmark rates at 0% to incentivize businesses and households to take credit and boost the economy. 

After gradually raising rates for the last four years, the Federal Reserve has announced that they’ve cut rates to 0% again. The central bank will buy $700 billion worth of bonds – $500 billion of Treasuries and $200 billion of mortgage-backed securities – to provide institutions with much-needed liquidity. 

The S&P 500 may already have this rate cut priced in as it surged 9.3% last Friday. 

The probability of a recession in the United States has also increased by 50% in the last two weeks, per Bloomberg Economics
Source: Bloomberg

Bitcoin is now trading with a correlation of 0.5 to the S&P – its highest correlation ever.

The correlation indicates macro investors still see Bitcoin as a speculative investment and are ditching it for safer investments as uncertainty ramps up. 

Source: CoinMetrics

Although the leading cryptocurrency performed similarily to a risk-off asset during the conflict between the United States and Iran, Bitcoin’s safe haven narrative has so far failed to shelter HODLers in the latest macro downturn.



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