Altcoin

What It Means for the Crypto Market?

Published

6 hours ago

February 6, 2025

Coin2049 Newsletter

In a surprising development in the United Kingdom, the Bank of England reduced interest rates for the third time since August. The central bank’s decision comes amid the prevailing crypto market crash, with top coins like Bitcoin (BTC) and Ethereum (ETH) experiencing notable losses.

As the Bank of England’s interest rate cut follows the Federal Reserve’s decision to hold the rate unchanged, it signals a divergence in monetary policy between the two major economies. However, as the Monetary Policy Committee projected a hawkish stance, the BoE’s rate cut has sparked speculations of a notable impact on the crypto market.

Bank of England Reduces Interest Rate to 4.5%

According to a Reuters report, the Bank of England has reduced interest rates by a quarter point to 4.5%. This marks the lowest level since June 2023. The Monetary Policy Committee forecasted that only two additional interest rate cuts would be necessary to curb inflation and return it to the target rate of 2%.

Notably, Governor Andrew Bailey alerted against further reductions in the interest rate. Bailey stated,

It will be welcome news to many that we have been able to cut interest rates again. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.

Central Bank’s Careful Approach To Monetary Policy

Further, the Bank of England highlighted the need for a “careful” approach to potential decisions. As the risks have now become two-sided, the committee posited, “There are uncertainties around the trajectories of both demand and supply in the economy that could have implications for monetary policy.”

As the central bank has shared a hawkish stance, the community is less likely to invest in risky assets such as cryptocurrencies. If this leads to a panic sell-off, the crypto market will see further downturns.

Federal Reserve’s Nuanced Stance on Interest Rates

Following the 2-day FOMC Meeting, the Federal Reserve decided to hold its interest rate unchanged at the 4.25% and 4.5% range. As per anticipations, the Fed is expected to maintain the rate steady for a larger part of the year.

The crypto market remained unaffected following the FOMC meeting and the Fed’s interest rate decisions. However, the industry collapsed shortly thereafter. The crypto crash was mainly driven by US President Donald Trump’s national emergency declaration, triggering a trade war. The President imposed heavy tariffs of 25% on Mexico and Canada as well as 10% on Chinese imports.

Thus, it needs to be seen how the Bank of England’s interest rate decision will influence the crypto market.

How Will BoE’s Interest Rate Impact Crypto Market?

Currently, the crypto market is striving to recover from the recent turmoil while the Bank of England has introduced reduced interest rates. With a total market cap of $3.22 trillion, down 0.47%, the market is still in its bearish phase.

Bitcoin is trading below the significant $100k mark, marking a marginal increase of 0.11% over the last 24 hours. Priced a $98.7k, Bitcoin experienced a 5.91% loss over the past week and a 1.96% dip over the last month.

Meanwhile, Ethereum and XRP have exhibited declines of 14.45% and 21.7%, respectively, over the last seven days. Solana, BNB, and Dogecoin are also on the bearish trend, marking declines of 16%, 13%, and 22%, respectively.