May 15, 2024 - Economy

Bitcoin price in a post-ZIRP world

Illustration of a hand pushing a percent sign away.

Illustration: Gabriella Turrisi/Axios

Coiners have been worried that the end of the free-money era would blunt bitcoin's next rally.

The big picture: True, bitcoin is a risk asset, which tends to do better when interest rates are low, and poorer when rates are high โ€” but ending there would oversimplify what factors are driving price of the world's oldest cryptocurrency.

Bitcoin has a limited history. It was born during the reign of zero interest rate policy, known as ZIRP, and doesn't have a long record of stacking cakes without it.

  • Many folks are now keenly focused on things like inflation prints, to divine whether the U.S. is in position to cut rates, which should give BTC a bigger boost.

Between the lines: "ZIRPlessness," however, might matter less to bitcoin than one might think.

  • "Bitcoin has never been a yield network," Noelle Acheson, author of Crypto is Macro Now newsletter, said, explaining how higher rate policy makes DeFi yields look relatively riskier. That presents a bigger drag for ether than bitcoin, she notes.
  • Crypto shop Pantera Capital echoed: "As interest rates have risen over the past couple years, blockchain has been able to rally."

Case in point: BTC posted new records in the first quarter.

In terms of U.S. rate policy, most seem to think a cut will come later, rather than sooner, but if the economy shows signs of weakening, maybe Federal Reserve chair Jerome Powell will have more leeway, Acheson said.

The intrigue: Whereas monetary policy uncertainty might keep bitcoin moving sideways in the near term, some think geopolitical tension is a booster.

  • "Where there was speculation on bitcoin at low interest rates, now there's kind of safety in bitcoin at high interest rates," Ryan Rasmussen, a researcher at Bitwise Asset Management, said.
  • ๐Ÿงต That bitcoin-as-safe-haven narrative is one that Hong Kong issuers of spot bitcoin ETFs have told Axios is important to their clients.

What we're watching: Where bitcoin's next boost could come from is uncertain โ€” easing in Europe or Asia or in the U.S., or from greater potential reach from product distribution, or a large investor coming in, Acheson said.

The bottom line: At large, bitcoin is a macro asset and tied to the short-term trades of macro investors, but what moves the price of bitcoin is narrative, "more than correlation, or valuations, and to be honest, interest rates, although [what people say] about interest rates do matter," Acheson said.

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