US stocks continue to wobble over widespread worries brought about by the coronavirus, and more Wall Street capitalists are betting the central bank will cut rates to cushion the economy.
But whether market players turn to digital currency as a cushion for the current turmoil remains to be seen. The Federal Reserve's much-anticipated rate cut could, in principle, help crypto prices since lower rates could potentially diminish the appeal of assets like the US Treasury bonds, analysts monitoring the 11-year-old bitcoin, noted.
It is still unclear if the central bank would go on reducing their rates, with its chief, Jerome Powell, taking a "wait and see" stance. Yields on 10-year treasury bonds fell around 0.15 percentage point to a new low of 1.14 percent, which suggests soaring demand; equity prices shift in the other direction of yields. Interest rates were also down on government equities from the United Kingdom, while those from Japan and Germany dropped into the red zone.
The stock market has collapsed 14 percent in the past few days over rising jitters the coronavirus will become a worldwide pandemic that could hurl the global economies into recession. Small and large businesses around the world are already reporting major losses in sales as companies and consumers cancel vacations and business-related trips.
Analysts warn, though, that the Fed's interest rate cuts and its other economic action plans might not do much to contain the economic damage caused by the virus.
As interest rates decline, consumers are more likely to tip the see-saw toward assets that do not have any significant yield, like collectible assets such as gold or even virtual currency, Greg Cipolaro, co-founder of New York-headquartered cryptocurrency analysis agency Digital Asset Research, said.
Prices of bitcoin have fallen 15 percent since Sunday, on course for their worst 7-day performance since the middle of November. The digital currency dropped almost 3 percent late Friday to $8,573, the lowest in a month. But despite this drop, bitcoin still remains attractive to many investors.
Oxford Economics chief financial economist Kathy Bostjancic said cuts in interest rates could help the US economy by easing financial markets and supporting lending. Many deeply-indebted business entities might face bigger loan costs if the economy sinks, and a central bank rate reduction could balance that impact.
Companies have seemed to have shunned issuing new bonds this week, Bostjancic said, fearing that they would have to pay bigger interests. And falling stock markets can also take a heavy blow on consumer sentiment and cut spending, even among Americans who don't own stocks. That could play heavily against the economy. Yet, there's bitcoin, in the midst of all the confusion.
