Bitcoin had a strong week, finishing above $62,500 with a gain of almost 6%. This surge in value is tied to a jumbo-sized Federal Reserve interest rate cut, and a weakened greenback. The U.S. Central Bank slashed interest rates by 50 basis points while the European Central Bank settled for just 25bps.
Dollar Weakens, Bitcoin Rises
Bitcoin and the U.S. dollar have historically shown an inverse relationship (negative correlation), as evidenced by the graph below. As the greenback weakens, Bitcoin tends to gain strength. Since the beginning of the month, the U.S. dollar Index (DXY) has lost 1% while Bitcoin has gained more than 6%. The downward trend of the greenback that began in late June has not weakened amid ECB divergence from its Atlantic peer.
ECB and Fed Interest Rate Cuts
Monetary policy decisions that directly influence exchange rates have, by extension, a strong impact on Bitcoin. The ECB cut its key deposit rate by 25 basis points to 3.50%, while the Federal Reserve made its first rate cut since 2020, with a more aggressive 50-basis point reduction. The U.S. Central Bank also lifted forecasts for further rate cuts this year. These moves lower the opportunity cost of holding non-yielding assets like cryptocurrencies and precious metals. As a result, Bitcoin ETFs have benefitted from investors’ renewed appetite for the world’s largest cryptocurrency.
Bitcoin ETFs on the Rise
With Bitcoin prices climbing, cryptocurrency ETFs skyrocketed, gaining 6.76% over the week and bringing their year-to-date performance to an impressive 34.10%. Bitcoin-specific ETFs, like Bitcoin Tracker Euro ETC (BITCOIN XBTE) and CoinShares Physical Bitcoin (BITC), saw notable increases of 6.94% and 7.44%, respectively.