In what ways do Federal Reserve interest rate cuts and proposed stimulus checks affect Bitcoin’s liquidity and appeal as an inflation hedge?
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Correct Answer
Lowered interest rates by the Fed make traditional savings less attractive, prompting investors to seek higher returns in assets like Bitcoin. Proposed stimulus checks add more cash into the economy, increasing liquidity that can flow into Bitcoin. Together, these factors enhance Bitcoin’s appeal as an inflation hedge.
Why is this the correct answer?
This is correct because when the Fed cuts rates, borrowing costs decrease and fixed-income yields fall, so investors look for alternative stores of value. Extra stimulus checks boost disposable income, some of which may be invested. Beginners should see how monetary policy and fiscal stimulus can drive more capital into risk assets, including cryptocurrencies.