With interest rate cuts coming, is the bull market far away?
Historical data shows that Federal Reserve rate cuts typically help drive up Bitcoin prices.
Original title: "Rate cuts are coming, is the bull market far behind?"
Original author: Viee, Biteye
Fed Chairman Powell recently said that "it's time to adjust policy", hinting that rate cuts are coming. Will the Fed's rate cuts definitely drive up Bitcoin prices?
Will the crypto market definitely benefit from rate cuts?
This article will delve into this issue and analyze how the Fed's rate cuts affect the rise in Bitcoin prices, as well as the risks that need to be noted.
01 Purpose and background of rate cuts
The main purpose of the Fed's rate cuts is to reduce borrowing costs and stimulate economic activity. In recent years, factors such as inflationary pressures, global trade frictions, and the COVID-19 pandemic have made the Fed more cautious in monetary policy, and rate cuts usually occur when economic growth slows or faces the risk of recession. To do this, we need to understand the following two concepts:
· Slowing economic growth: When economic growth slows, corporate and consumer confidence declines, and the willingness to invest and consume weakens. The Federal Reserve reduces borrowing costs by cutting interest rates, encouraging investment and consumption, thereby promoting economic recovery.
· Inflation expectations: Interest rate cuts may trigger rising inflation expectations. When facing inflation risks, investors often seek inflation-resistant assets, such as cryptocurrencies such as Bitcoin.
02 Positive factors of interest rate cuts on the rise in Bitcoin prices
Historical data shows that the Federal Reserve's interest rate cuts usually help drive up Bitcoin prices.
The reason is simple. Interest rate cuts reduce the cost of funds, which encourages investors to invest their funds in high-risk and high-return assets, such as Bitcoin.
Therefore, the positive factors of interest rate cuts for Bitcoin mainly include:
· Stimulate investment: Investors tend to seek higher returns in a low-interest environment, driving up Bitcoin prices.
· Improve market sentiment: The interest rate cut is for the purpose of stimulating economic growth and promoting economic recovery, which conveys the Fed's positive policy signal. It makes investors more willing to take risks and prompts more funds to flow into Bitcoin.
· Push up Bitcoin's anti-inflation characteristics: Interest rate cuts may lead to lower returns on traditional safe-haven assets and higher inflation expectations, making Bitcoin's anti-inflation characteristics as digital gold more obvious. Many investors may view Bitcoin as a tool to fight inflation, thereby driving up its demand and price.
· Increase market liquidity: The loose monetary policy brought about by the interest rate cut increases market liquidity, making it easier for investors to enter the market and driving up the price of Bitcoin.
03 Historical cases of the Fed's impact on Bitcoin prices
First, let's review the recent interest rate cut/hike cycles.
From December 2018 to July 2019, the price of BTC experienced a rise from $3,000 to $13,000. The Fed began to cut interest rates in July 2019, and the market began to react to the expectation of interest rate cuts in April 2019.
From July 2019 to March 2020, despite the Fed's interest rate cuts, the price of Bitcoin fell first and then rose. After the rate cut, the price of Bitcoin fell from $13,000 to $7,000, a drop of more than 30%. The price fluctuations at this stage reflect the different interpretations of the rate cut by the market, showing that rate cuts do not always bring immediate positive market reactions.
In March 2020, affected by the COVID-19 pandemic, the Federal Reserve quickly cut interest rates and launched large-scale quantitative easing. The market lagged slightly and ushered in the main uptrend at the end of 2020 and the beginning of 2021. In this cycle, the price of Bitcoin rose from $3,000 to $65,000.
During the rate hike cycle from March 2022 to July 2023, the price of Bitcoin fell from $45,000 to a minimum of $15,000, experiencing a 9-month decline. The performance at this stage shows that the market is more sensitive to rate hikes, and the expectation of rate cuts did not appear before the price rebounded.
Therefore, based on historical circumstances, the market reaction after a rate cut may be ahead of schedule or delayed, and in most cases it is good for Bitcoin to rise. It should be noted that in a few cases the market may face selling pressure, leading to a decline, which may show a decline first and then an increase.
04 There is selling pressure on Bitcoin
If the rate cut is due to signs of a recession, the market may be pessimistic about the future economic outlook. In this case, investors may choose safe-haven assets instead of Bitcoin. Although Bitcoin is regarded as digital gold, during a recession, investors may prefer traditional safe-haven assets such as gold, resulting in a decline in Bitcoin demand. In addition, uncertainty in regulatory policies and black swan events with a wide range of influence will also affect the effect of rate cuts. These situations may lead to selling pressure in the market.
05 Summary
After the launch of spot ETFs, the impact of US dollar liquidity on the crypto market will become more apparent, but the impact of the Fed's interest rate cut on Bitcoin prices is complex.
The market reaction to the interest rate cut may be early or delayed, and is affected by a variety of factors. It should be noted that in some cases, such as concerns about economic recession, uncertainty in regulatory policies, and reversal of market sentiment, Bitcoin may have a certain selling pressure.
What's more, the Fed's monetary policy is an important factor affecting Bitcoin prices, but it is not the only factor. Therefore, we should pay close attention to various market factors to make rational investment decisions.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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