Traders are overwhelmingly betting on a dramatic short-term rate cut this year, which could beat Bitcoin’s sub-2% inflation rate.
The United States Federal Reserve will cut its interest rate target to compete with Bitcoin (BTC) post-halving, traders believe.
As Reuters reported on Feb. 28, Wall Street traders already consider the likelihood of the Fed cutting rates to boost the economy over coronavirus to be more than 75%.
Fed “monitoring” coronavirus
By September, the cuts could total 0.75%, bringing the short-term interest rate below 1% for the first time in three years.
The Fed did not appear rattled by coronavirus, which is now spreading more quickly outside its epicenter of China than within it.
“I think it would be premature until we have more data and have an idea what the forecast is to think about monetary policy action,” Charles Evans, president of the Chicago Fed, said on Thursday.
“But we’re monitoring it very closely and if we see something that does require adjustment I’m confident that we will give that all the consideration that it needs.”
Previously, U.S. president Donald Trump described the threat from coronavirus to the country still being “very low.”
U.S. and Bitcoin play catch-up
A potential dramatic rate reduction would see the Fed keep up with the planned supply decrease in Bitcoin set for May. Known as the block reward halving, the event will shave 50% off the lot of “new” Bitcoins released to miners every 10 minutes.
After the halving, Bitcoin’s inflation rate will be under 2% — less than the Fed’s current long-term target, and also undercutting that of gold.
Bitcoin’s relationship to coronavirus meanwhile remains a topic of speculation. Having previously risen as markets became unsettled, further deterioration has likewise driven down BTC/USD.
Bitcoin vs. the S&P 500 showing the impact of coronavirus. Source: Skew Markets
Away from the U.S., on Wednesday, the Dow Jones suffered its biggest one-day fall in history. As Cointelegraph reported, one well-known pro-Bitcoin analyst is already betting that Bitcoin hits $40,000 before the Dow sees 40,000 points.