July was another strong month for the stock markets despite the looming threat of an upcoming economic downturn, with the Dow, Nasdaq and S&P 500 all nearing their average monthly earnings for the calendar month. However, Bitcoin has spent much of July locked in a downturn.
This morning when the Fed's monetary policy meeting met the deadline to cut interest rates, the Dow Jones Industrial Average fell sharply on the news. At about the same time, Bitcoin spiked over the local lows and could signal that a bullish change is around the corner. When the two markets respond to the news, what's next for each?
Dow Jones Industrial Average Fall after Federal Interest Rate Cut
Today, the Federal Open Market Committee lowered its lending rate by 25 basis points . Concerned stock market investors had begun selling late Tuesday through Wednesday, resulting in as much as 450 points falling for Dow following the announcement of Federal Reserve Chairman Jerome Powell.
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Powell called the cut a "mid-cycle adjustment to politics," and says it "is not the beginning of a long series of interest rate cuts." But stock market investors were shaken. anyway, which resulted in the steep decline.
US President Donald Trump had asked for a cut of 50 basis points, so despite the reaction, Powell's cuts are modest in comparison.
Ongoing concerns about the US and China trade wars have only fueled further investor fears that the interest rate cut is just another ingredient in a recipe for economic disaster. During economic downturns, investors often sell their shares in exchange for "safe haven" wealth, and that may be what drives the stock market sales.
Does Dow Droping Bode Benefit for Bitcoin?
While stock market investors de-risk and differ from US-driven stocks and indices, the outflow of capital usually goes somewhere. Lately, as the economic turmoil heats up, so does the price of gold and currencies for safe havens such as Swiss Franc or Japanese Yen.
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In recent weeks, gold has caught the attention of the media to launch what many consider to be a bull run for precious metal and the investment advantage. Gold's scarcity and longevity make it a top choice during economic downturns as a way to safeguard against further decline. Both Bitcoin and gold have shown correlated price movements.
Bitcoin was designed in the wake of the 2009 financial crisis, and experienced only the first federal interest rate cut since its existence. How it reacts from here is anyone's guess. The crypto asset has recently left the bear market and has risen alongside gold. Bitcoin is set up as the digital version of gold, and shares many similarities.
Bitcoin, in the face of the economic downturn, may finally show its true potential as a digital substitute for gold, and as the economic hedgehog, Satoshi Nakamoto had designed it to be. And when capital escapes from falling stock markets, Bitcoin may very well continue on its course from here and become the global currency substitution for fiat that many people imagine it to be.