AI-driven efficiencies could reduce inflation, paving way for more aggressive rate cuts: Coinbase
Quick Take
- Efficiencies provided by artificial intelligence could reduce inflationary pressures, according to Coinbase analysts.
- Combined with mounting pressure from U.S. politicians, these factors could support more aggressive Fed rate cuts this year, the analysts added.
Many crypto projects are tied to artificial intelligence, and the growth of AI has increased competition for processing chips. However, Coinbase research analysts David Duong and David Han expect AI and technology-driven efficiency gains to affect crypto in another, rather circuitous way — by dampening inflation. This reduction could keep interest rates lower, increasing the appetite for riskier assets like crypto.
Friday's Coinbase market report added that these AI-driven efficiencies, coupled with mounting political pressure for monetary easing in the U.S., could support earlier and more aggressive rate cuts than those signaled by the Federal Reserve thus far.
"When rate cuts begin, we think that will be a constructive catalyst for both equities and crypto as it could lead to capital outflows from money market funds, currently holding $6.4 trillion, into other asset classes," the analysts added.
After Wednesday's Federal Open Market Committee (FOMC) meeting, interest rate traders are betting the Fed could deliver a cut as early as September this year. Coinbase analysts added to this forecast, stating that "there could be another rate cut again in November because of our view that the disinflationary trend remains intact, despite our concerns over the cost of shelter."
Bitcoin trends lower after Fed rate decision
Bitcoin has struggled to recover after the U.S. Federal Reserve suggested Wednesday it would pencil in only one rate cut this year.
The U.S. central bank's more hawkish tones also impacted equity markets, with bitcoin's decline over the past day correlating with a wider market downtrend.
Bitcoin correlated with the overall move lower, decreasing by around 1% in the past day, and changed hands for $66,805 at 11:19 a.m. ET., according to The Block's Bitcoin Price Page.
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