Efficiencies provided by artificial intelligence (AI) could potentially reduce inflationary pressures, according to a recent report from Coinbase analysts. This factor, combined with mounting political pressure for monetary easing in the U.S., could support more aggressive interest rate cuts by the Federal Reserve this year.
AI and the Crypto Landscape
Many crypto projects are closely tied to AI, and the growth of this technology has increased competition for processing chips. However, Coinbase’s research analysts, David Duong and David Han, believe that AI and technology-driven efficiency gains could have a rather circuitous impact on the crypto industry.
Disinflation and Crypto’s Outlook
The Coinbase analysts expect the “disinflationary impacts of artificial intelligence and technology-driven efficiency gains” to continue moderating inflation throughout 2024. This reduction in inflationary pressures could lead to earlier and more aggressive rate cuts by the Federal Reserve, which the analysts view as a “constructive catalyst” for both equities and crypto.
“We believe that the disinflationary impacts of artificial intelligence and technology driven efficiency gains will continue to push this trend of moderating inflation throughout this year,” the analysts stated in the report.
Implications for the Fed and Crypto Markets
According to the report, the AI-driven efficiencies, coupled with political pressure for monetary easing, could support a rate cut as early as September 2024. The analysts also suggest the possibility of another rate cut in November, as the “disinflationary trend remains intact.”
These anticipated rate cuts could lead to capital outflows from money market funds, which currently hold $6.4 trillion, potentially directing more funds into riskier assets like cryptocurrencies.
Crypto Market Reaction
The news comes as Bitcoin has struggled to recover after the Federal Reserve’s more hawkish tone in its recent policy decision. Bitcoin has declined by around 1% in the past day, trading at $66,805 as of 11:19 a.m. ET, according to The Block’s Bitcoin Price Page.
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