How will the Fed rate cut affect Bitcoin?

On Sunday evening, in an unprecedented move, the US Federal Reserve slashed interest rates to near zero while promising $700 billion in quantitative easing. The decision was the latest response to the corona crisis, and its impact is beginning to reverberate around the world. .

The US markets are yet to open, but, so far in Asia, the response has been largely negative.

S&P 500 futures dropped further today, and are now down 25% from their peak, according to Bloomberg. The price of the dollar fell. However the yen rose on the news.

In Europe, it’s a similar picture. Britain's FTSE 100 is down by 5.8%, Germany's DAX has dropped by 7.7% and the Euro Stoxx 50 has fallen 8.5%, according to Business Insider.

Meanwhile, Texas crude oil declined by six percent.

All in all, not good. And so far today, the Bitcoin hasn’t escaped the latest rout, and is in steady decline. It dropped a further 13% today, after losing half of its value over the last week. But there could be more pain to come.

Throughout last week, Bitcoin’s narrative as a “store of value” was largely scrapped; each time the stock market fell, Bitcoin’s price failed to rise correspondingly, and instead followed suit.

Between March 7 and 9, the Dow Jones fell 2,000 points. Over the same days, Bitcoin’s price fell from $9,000 to $7,800.

Then, on March 12, when the Dow Jones fell to its lowest point, the price of Bitcoin collapsed, falling from $7,500 to $5,500 over the course of the day.

Bitcoin then, is not spared from the panic selling that is affecting the traditional markets. That means investors will need to watch what happens when the US markets open at 0900 EST.

“We expect to see markets heavily affected as the virus continues to take its toll across global economies,” Jonathan Leong, CEO of Bitcoin exchange BTSE, said, in an email shared with Decrypt, “The Fed’s aggressive interest rate cut is a serious indicator of a dire situation similar to that of 2008.”

Leong said that Bitcoin’s fate could be tied to the traditional markets.

“In the short term we don’t see Bitcoin immune to this as the past months have indicated correlation with stock markets but rather we are seeing derisking with an overwhelming demand in stablecoins over the past few days," he added.

This price correlation is having an impact on diehard Bitcoiners. Even those who strongly adhere to the narrative that Bitcoin is an economic hedge, or a digital form of gold, are having to deal with its clear correlation to the markets.

“Bitcoin is not a hedge to pandemics, it is a hedge to fiat regimes. A sudden, negative demand shock in the global economy’ will affect every asset, including gold, in the short term,” Tyler Winklevoss, cofounder of crypto exchange Gemini, tweeted.

When even the most bullish Bitcoiners are worried, the casual investors should be too.