Could Rate Cuts Spark the Next Bitcoin Bull Run? Insights from 21Shares

Speaking at the annual Jackson Hole Symposium, Federal Reserve Chairman Jerome Powell has hinted strongly that interest rate cuts are imminent. Following this announcement, the price of Bitcoin surged past $63,000, with analysts predicting even further gains as the Fed begins to cut rates.

Leena ElDeeb, a researcher at 21Shares, highlighted that previous interest rate cuts have historically boosted the value of digital assets. For example, during the Covid-19 pandemic, when rates were slashed by 150 basis points, the total crypto market cap skyrocketed by 450%, and Bitcoin itself increased by 200%.

While past performance isn't a guarantee for the future, ElDeeb suggests that the March 2020 cuts could serve as a benchmark for understanding the potential impact of upcoming rate cuts on crypto markets.

Levels of the M2 Money Supply as a Market Signal

ElDeeb also pointed to changes in the M2 money supply, which measures the total currency circulating in the global economy, as a potential trigger for a Bitcoin breakout. Historically, Bitcoin's price tends to hit its lowest point months before the M2 money supply reaches its low, followed by a rapid surge.

She describes this phenomenon as leading to a "mid-cycle correction" after a significant price increase. Additionally, she identified Bitcoin ETFs as a key catalyst for price appreciation amid the M2 money supply cycles.

Institutional Interest in Digital Asset Investment

Despite a $528 million outflow from digital asset investment products during the week of August 3, institutional interest remains robust. Notably, inflows into BlackRock's iShares Bitcoin Trust (IBIT) and Fidelity's Wise Origin Bitcoin Fund (FBTC) amounted to $20.3 million and $61.3 million, respectively.

This strong interest is further evidenced by investment advisers increasing their exposure to Bitcoin ETFs during the second quarter of 2024.