Will the ECB's Interest Rate Cut Benefit Bitcoin?

North America Bureau (Report) - Influenced by a significant monetary policy decision from the European Union, Bitcoin inflows may increase this week.

The European Central Bank (ECB) is expected to cut its interest rate by 0.25% to 4.25% on June 6. This rate cut could boost investor interest in risk assets like Bitcoin.

Bitfinex's derivatives head, Jag Kooner, told Cointelegraph: "The ECB is expected to cut rates next week to stimulate economic growth. Lower rates typically weaken the euro and increase liquidity, which can boost risk assets, including Bitcoin."

The anticipation of a rate cut comes amid a period of slowing inflation in Europe. The Consumer Price Index (CPI) for May is expected to reach 2.6%, which could mark the eighth consecutive month of inflation below 3%.

Bullish Outlook: Bitcoin to Follow Stock Market Higher

James Wo, founder and CEO of Digital Finance Group, stated that a potential rate cut could boost the traditional stock market and provide further upward momentum for Bitcoin.

Wo told Cointelegraph: "A rate cut will positively impact traditional stocks, as seen with the rise in European stocks following dovish remarks from the ECB's Governing Council in early May. This could mean a shift in liquidity towards riskier assets like Bitcoin, thereby pushing up its price."

In May, Europe's two flagship stock indices, the STOXX 600 and DAX 40, rose alongside Bitcoin's price. According to BitStamp, the STOXX 600 rose more than 3.3% over the past 30 days, while the DAX 40 rose more than 3.8%, and BTC's price increased by over 17.4%.

Alternative View: Bitcoin as "Digital Gold" Decoupling from Stocks

Bitcoin's historical correlation with traditional stock markets has been mixed. However, in a stimulus-driven environment, Bitcoin might follow the stock market higher.

Kooner told Cointelegraph: "Historically, Bitcoin's correlation with stocks has been mixed. Under economic stress, as investors liquidate assets, Bitcoin often reflects stock market trends. In a low-interest-rate, stimulus-driven environment, increased liquidity may benefit Bitcoin alongside stocks."

Despite the underperformance of the stock market in the world's largest economy, the United States, Bitcoin's price has surged strongly this year. According to BitStamp, the S&P 500 index has risen more than 11.5% year-to-date, while Bitcoin's price has increased by 57.6%.

"Despite the pullback in the U.S. stock market, BTC has remained strong. Whether this is a lag or relative strength in cryptocurrencies remains to be seen," Kooner added.