Fed’s rate cut unlikely to affect crypto volatility

According to analyst, while there is more interest in cryptocurrencies, there is little correlation with the central govt behaviour on monetary policy


THE greater awareness of cryptocurrencies is driving prices, but there is little correlation to changes in the interest-rate levels, says analysts.

The price of Bitcoin has witnessed increased volatility last month, falling from around the US$10,000 (RM41,876) level on Sept 22 to about US$8,068 yesterday and comes a week after a new bitcoin futures exchange and digital asset platform — Bakkt — was launched and the US Federal Reserve (Fed) moved to cut rates.

An analyst said while there is more interest in cryptocurrencies, there is little correlation with the central government behaviour on monetary policy or action.

For instance, in mid-September, the Fed lowered the target range for its key interest-rate by 25-basis points (bps) to between 1.75% and 2%.

“It is very rare for Bitcoin or any alternative coins (Altcoins) have taken cues from the Fed’s actions in the past,” the analyst said.

In December 2015 the Fed hiked rates by 25bps, the first hike since 2006 and the central bank delivered another rate hike in December 2016. It also hiked rates by fourfold in 2017.

After that, Bitcoin market price rocketed to hit US$20,000 by the end of 2017.

Bitcoin price opened at US$9,535 in September before reached the month high of US$10,851 six days after.

In the mid-month, before the Fed’s rate cut, the leading cryptocurrency settled at US$10,368, according to Coinmarketcap.com.

Bitcoin price then fell 4% the next day before recovered at US$10,257 for three days later.

This year, Bitcoin price has ranged between US$4,071 in January and US$13,030 in July.

Malaysia Investors’ Association VP Aaron Ting said this may be attributed to the traditional investors and inclu- ding high net-worth individuals taking a greater interest in Bitcoins and to a lesser extent to the second most popular coin — Ethereum.

“This might explain the searing Bitcoin dominant climb, especially over the year. At the moment, this interest has not spilled over to the other coins collectively known as “Altcoins” which is not surprising looking at the poor performance of these assets over the last year,” he said.

Aaron said the local cryptocurrencies market is currently in the ‘on hold’ mode as the investors are awaiting the provisionally approved of Digital Asset Exchanges.

The recognised market operators are Luno Malaysia Sdn Bhd, Sinegy Technologies (M) Sdn Bhd and Singapore-based Tokenize Technology (M) Sdn Bhd, which were granted conditional approval from the Security Commission Malaysia (SC) last June.

All three companies were given nine months to fully comply with the regulatory requirements set by the authority, before they could secure SC’s full approval.

The new Bakkt platform is targeting institutional investors and allows traders to enter daily and monthly futures contracts — agreements wherein the buyer of a contract bets that the price of Bitcoin will go up or down by a certain date, and pockets-or pays-the difference.

The Intercontinental Exchange-backed Bitcoin warehouse comes into being after 13 months of questions and two delays.

As of 6.00pm yesterday, Bitcoin traded at US$8,074 giving it a total market cap of US$145.1 billion.