Lowering Interest Rates Will Not Boost Bitcoin Prices

Quoting Cointelegraph, Tuesday (3/9/2024) Hayes referred to the post of Maelstrom’s Chief Investment Officer on the social media platform X, which said that even though Federal Reserve Chairman Jerome Powell confirmed a September interest rate cut in his speech at Jackson Hole, the price of Bitcoin continued to struggle and decline.

Since the speech, Bitcoin’s price has soared to USD 64,000 before falling 10% to a low of USD 57,400 on September 2, 2024. Bitcoin’s price has then recovered slightly to trade at USD 59,238.

Hayes explained the decline was due to reverse buybacks, which are the sale of securities with an agreement to buy them back at a higher price at a specified future date, noting that they pay 5.3% interest.

This figure is higher than short-term government bonds, which provide a lower yield of 4.38%.

As a result, large money market funds are pulling their cash out of government bonds and putting it into reverse repos, which leaves less money in the market for riskier assets like crypto, Hayes said.

X account ‘ELI5 from TLDR’ also explains that reverse repurchase programs can act as an overnight parking lot for big banks and money managers to place their cash.

It is explained that this program also provides greater returns than other safe investments, so that capital remains in the “parking lot” instead of flowing through the economy.

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