Bitcoin Price Rises After Bank of Canada Cuts Interest Rate Below 5%

Canada’s central bank just cut its benchmark interest rate for the first time in four years—a pivotal move that suggests other monetary authorities could soon start doing the same.

That’s good news for risk assets like Bitcoin, which have historically performed well when borrowing money is cheap and when the fiat money supply is on the rise. After the news broke, Bitcoin shot up 1.5% to $71,600, its highest price since March. The price of BTC has settled to $70,930 as of writing, according to CoinGecko data.

“We've come a long way in the fight against inflation,” said Bank governor Tiff Macklem during opening remarks on Wednesday. “And our confidence that inflation will continue to move closer to the two per cent target has increased over recent months.”

The cut, which brings the country’s policy rate down 2 basis points from 5.0% to 4.75%, makes Canada the first G7 country to begin relaxing its fight against inflation, which overran the world during the COVID-19 pandemic.

In Canada, annual Consumer Price Index (CPI) inflation has now cooled from 8.1% in June 2022 down to 2.7% in April 2024.

Crypto Is No Way to ‘Opt Out of Inflation': Bank of Canada

Top officials from the Bank of Canada rebuked claims that Bitcoin, or any other cryptocurrency for that matter, could substitute the Canadian dollar in the face of the country’s rising inflation, according to a Global News report. During testimony before the finance committee of the House of Commons on Monday, Liberal MP Yvan Baker asked the bank’s governor Tiff Macklem and senior deputy governor Carolyn Rogers whether the use of crypto could represent an effective strategy against inflation. “I...

"We don't want monetary policy to be more restrictive than it needs to be to get inflation back to target,” said Macklem. “But if we lower our policy interest rate too quickly, we could jeopardize the progress we've made.”

The central bank of Switzerland, where inflation was a low 1.4% in April, led the world with an interest rate cut back in March down to 1.5%. Meanwhile, the European Central Bank (ECB) is largely expected to cut its main refinancing rate by 25 basis points to 4.25% at its next meeting – which is tomorrow.

By contrast, inflation in the United States has proven more sticky at 3.4% in April, prompting suspicions that the Federal Reserve could keep rates “higher for longer.”

Bitcoin and Ethereum Rebound as Interest Rates Remain Unchanged in US

Bitcoin and Ethereum have rebounded after starting yesterday morning nearly 10% lower than they were on Tuesday. At the time of writing, the Bitcoin price is around $57,700 after having made a 0.5% recovery in the past 24 hours. And the Ethereum price, after climbing 2.3% in the past day, is now trading for just below $3,000, according to CoinGecko data. But the damage has still been done. Per CoinGlass, the past 24 hours saw another $193 million worth of crypto futures contracts liquidated, add...

According to CME Fedwatch, the market still believes the Fed will keep rates flat at its June meeting, though a 25 basis point cut by September is viewed as the most likely outcome.

That said, the Fed also cut the rate of its quantitative tightening program by over 50% last month, which has a net effect of reducing the pace at which the Fed takes money out of the economy.

“Keeping front-end rates elevated while simultaneously tapering QT can be likened to both applying the brakes to a car and accelerating at the same time,” wrote Coinshares Head of Research James Butterill in May.

Edited by Ryan Ozawa.