Cryptocurrency investment products have experienced substantial inflows following the US Federal Reserve’s decision to lower interest rates, according to crypto investment firm CoinShares.
Digital asset investment products posted a second consecutive week of inflows during the week from Sept. 15 to Sept. 21, totaling $321 million. The new weekly inflows are slightly down from the previous week, which totaled $436 million in inflows.
The surge was likely driven by the Federal Open Market Committee (FOMC) decision to cut interest rates by 50 basis points (bp), CoinShares stated in its latest weekly digital asset fund flows report released on Sept. 23.
Bitcoin versus Ethereum products: $284 million in inflows and $29 million in outflows, respectively
According to CoinShares, Bitcoin (BTC)-based investment products were the primary focus last week, with $284 million in inflows. The report mentioned that recent BTC price changes triggered growing inflows into short-Bitcoin investment products, totaling $5.1 million.
Weekly crypto investment flows (from. Sept. 15 to Sept. 21, 2024). Source: CoinShares
On the other hand, Ethereum remained an “outlier,” CoinShares noted, as Ether (ETH)-based investment products saw outflows for the fifth consecutive week, totaling $29 million last week.
According to CoinShares’ analysis, the repeated ETH outflows were due to persistent outflows from the Grayscale Ethereum Trust (ETHE) and insufficient inflows from the newly issued exchange-traded funds.
Additionally, CoinShares noted that Solana (SOL) investment products continued to see small but consistent weekly inflows, amassing $3.2 million last week.
50 bp rate cut impact on the markets
The US Federal Reserve issued an FOMC statement on Sept. 18, officially announcing the Board of Governors’ decision to approve a 50 bp decrease. The decision marked the first time the United States reduced borrowing costs since March 2020, when the Fed cut interest rates over the COVID-19 outbreak.
According to CoinShares, the rate cuts have fueled a positive reaction in crypto markets, with total assets under management surging 9%. Total investment product volumes also edged up 9% from the previous week to reach $9.5 billion, the firm noted.
While Bitcoin investment products saw a positive trend amid the 50 bp reduction, some analysts previously predicted the opposite.
“Historical data suggest that BTC and other risk-on assets showed resilience during non-recessionary rate cut cycles,” Bybit and BlockScholes said in a joint report on Sept. 18. The analysts added:
“However, aggressive rate cuts during recessionary periods typically result in negative market outcomes […] These developments have the derivatives market on its toes, with notable volatility premiums assigned to BTC options expiring in late 2024 and early 2025.”
BitMEX co-founder Arthur Hayes predicted that markets would collapse in the immediate aftermath of the Fed’s rate cuts, slamming the US central bank for cutting rates amid growing US dollar issuance and increased government spending.
Related: Crypto poised for boost if Fed cuts rate by 50 bps, says hedge fund boss
Following the rate cuts, investors have also been increasingly buying gold, with the price steadily seeing new all-time highs.
On Sept. 23, spot gold hit a new record high of $2,629 per ounce, following a gain of more than 5% over the past two weeks.
Gold price over the past 30 days. Source: GoldPrice.org
According to Bas Kooijman, CEO and asset manager of DHF Capital, the 50 bp rate cut could help extend the uptrend in gold prices, which could continue to see new records thanks to other additional supporting factors.
“The decision acts as a start to the interest rate cut cycle that markets have been waiting for a long time now and could fuel appetite for assets like gold and others,” Kooijman stated. He also suggested that the size of the cut “also opens the way for more aggressive actions in the coming months.” He added:
“In this regard, the Federal Reserve’s dot plot shows a steeper decline in interest rates than previously forecast by the central bank. This trajectory could further cement gains in gold prices.”
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