Will Bitcoin benefit from a rate cut by the European Central Bank?

Following a key monetary policy decision in the European Union, you may see Bitcoin earnings rise this week.

The European Central Bank (ECB) is expected to cut interest rates by 0.25% to 4.25% on June 6. The decline in prices may increase the appetite of investors for risky assets such as Bitcoin (BTC), according to Jag Conner, head of derivatives. Bitfinex Conner told Cointelegraph:

“The European Central Bank is expected to cut interest rates next week to stimulate economic growth. Low rates typically weaken the euro and increase liquidity, which could boost risk assets including Bitcoin.”

Expectations of the rate cut come as inflation is slowing in Europe. May's headline consumer price index (CPI) is expected to come in at 2.6% – likely the eighth straight run of inflation below 3%.

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Bullish outlook: Bitcoin follows stocks higher

According to James Wu, founder and CEO of Digital Financial Group, lower interest rates could boost traditional equity markets and lead to further upside for Bitcoin.

Waugh told Cointelegraph:

European stocks rose after comments from the ECB's Governing Council in early May that a cut in interest rates would have a positive effect on traditional stocks. This could translate into a shift in liquidity for risk-sensitive assets like Bitcoin as well as increasing its value.

Two of Europe's major stock indexes, the STOXX 600 and the DAX 40, rose in May, along with the price of Bitcoin. The STOXX 600 rose more than 3.3%, the DAX 40 rose more than 3.8% in the last 30 days, while the price of BTC rose more than 17.4%, according to BitStamp.

Related: EU elections ‘wild card' could pave the way for the first Ether ETF.

Alternative View: Bitcoin Cuts from Stocks as “Digital Gold”

Bitcoin's historical correlation has been mixed with that of the traditional stock market. However, Bitcoin can follow higher stock markets in an economic stimulus-oriented environment. Connor told Cointelegraph:

“Historically, Bitcoin has shown a mixed correlation with stocks. During periods of economic stress, Bitcoin often mirrors stock market trends as investors liquidate their assets. In a stimulus-driven environment with low rates, Bitcoin can benefit from stocks due to increased liquidity.

However, the price of bitcoin has risen sharply this year despite a slowdown in the stock market in the United States, the world's largest economy. The S&P 500 index is up more than 11.5% (YTD), while the price of Bitcoin is up 57.6% YTD, according to BitStamp.

“While US stocks pulled back, BTC remained strong. It remains to be seen if this is crypto lagging or relative strength,” Conner added.

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