[TL;DR]

After the release of the June CPI data, the market generally expects that the Fed will take a rate cut action in September, and Fed officials have also publicly stated that the timing of the rate cut is approaching.

In the short term, the global Cryptocurrency market, represented by the Federal Reserve, has undoubtedly been given a shot in the arm by the rate cuts of Central Banks around the world. With a significant increase in market Liquidity, the rate cut expectations have directly triggered market optimism.

The global Central Bank has opened the prelude to interest rate cuts, bringing new opportunities and challenges to the encryption market, requiring investors to analyze comprehensively and participate rationally.

Introduction

Recently, when inflation failed to reach the expected control targets, the Central Bank of Canada and the Central Bank of Europe, instead of following the traditional path, cut interest rates in response to global economic slowdown and economic pressures in various countries. Despite the fact that the Fed has not yet officially cut interest rates, given the significant slowdown in inflation data over the past three months, Fed officials have hinted at the maturity of the timing of interest rate cuts, with the market expecting the Fed to potentially initiate interest rate cuts in September, and the encryption market has begun to rebound due to the anticipation of liquidity easing, this article will provide a detailed discussion on this.

Europe leads the rate cut, and the Fed is expected to follow suit

Recently, the Central Bank of Canada and the Central Bank of Europe, as followers of this round of interest rate hikes, have chosen to cut interest rates first in the face of inflation that is higher than the target, in order to cope with the slowdown in the global economy and the multiple economic pressures faced by various countries.

Although the Central Bank of Europe has taken the first step to cut interest rates, the Federal Reserve has not yet cut interest rates. However, with the June CPI data showing the first negative month-on-month turnaround in four years, and the core year-on-year growth rate hitting a new low in over three years, Federal Reserve officials have publicly stated that the time to cut interest rates is approaching. The market generally expects the Federal Reserve to start taking action to cut interest rates in September.

Figure 1 Source: AICoin

In fact, Federal Reserve Chairman Powell has recently made multiple speeches on inflation and the economic situation, revealing the Fed's subtle attitude towards policy adjustments. In his statement this week, he further indicated that the slowdown in inflation and economic activity is largely in line with the Fed's expectations. In particular, the inflation data in the second quarter has to some extent strengthened the market's confidence in the decline in inflation, especially the pace of price pump is steadily returning to the Fed's target of 2%, which suggests that the window for interest rate cuts may be opening soon.

He also mentioned that the labor market is currently in a more balanced state, and if there is unexpected weakness in the future, it will also be one of the considerations for adjusting the Interest Rate.

The market has responded strongly to this dovish tone, with CME's FedWatch tool showing that the market widely expects the Fed to announce a rate cut at the September policy meeting, and this expectation has almost reached 100% certainty.

It is worth mentioning that the market will closely follow key economic data such as US retail sales, industrial output, and weekly jobless claims in June this week. These data are expected to provide more clues for evaluating the strength of the US economy and thereby affecting the market's expectations for the timing of the Fed's interest rate cut. Gate.io research will also continue to follow and analyze for everyone.

Overall, as inflationary pressures ease and economic growth expectations adjust, the Fed's interest rate cut has become a common consensus in the market, which is undoubtedly a long-awaited positive signal for the cryptocurrency market.

Will interest rate cuts directly affect the Favourable Informationencryption market? Yes or No

Despite the positive interpretation of interest rate cuts on the encryption market that currently pervades the market, we have also seen some cautious analysis.

Generally speaking, interest rate cuts are seen as a catalyst for increasing market liquidity, as the drop in borrowing costs can stimulate investor enthusiasm. This enhanced liquidity often permeates emerging markets such as cryptocurrency, thereby driving up their prices.

In addition, the increase in economic uncertainty in the context of interest rate cuts has prompted investors to seek safe-haven assets. Cryptocurrencies such as BTC, with their unique characteristics of decentralization, fixed supply, and ease of preservation, have gradually become a new option for safe-haven preservation, which will naturally further enhance their market attractiveness and prices.

Despite market expectations for rate cuts, many institutions generally believe that it is necessary to remain cautious in a complex and changing market environment. For example, Morgan Stanley strategists predict a possible 10% pullback in US stocks, while Goldman Sachs expects a large outflow of funds from US stocks in August, waiting for election results to become clear.

Image 2 Source: Bloomberg

This cautious attitude is mainly based on concerns about the possible recession of the U.S. economy. In the course of the financial crises of 2001 and 2008, although the Fed implemented interest rate cuts in the early stages, the market briefly reached a high point but then experienced a sharp decline trend. Even when the Fed quickly and significantly lowered the Intrerest Rate, it failed to effectively curb the further spread of the crisis. The root cause of these two crises can be traced back to the successive bursting of the internet bubble and the real estate bubble, which had a profound impact on the economy.

As for whether the current interest rate cut policy will repeat the same mistakes, triggering outbreaks such as the artificial intelligence bubble or the US debt crisis, and then dragging down the encryption market, it is still worth vigilance.

Under the influence of long factors, the encryption market may steadily rise

In fact, in the short term, the global cryptocurrency market, represented by the Federal Reserve, has undoubtedly injected a strong stimulus. Undoubtedly, as market liquidity significantly increases, the expectation of interest rate cuts will directly trigger market optimism, which may cause a short-term pump in the cryptocurrency market and bring opportunities for quick profits to investors.

Figure 3 Source: Gate.io

However, in the long run, the trend of the Cryptocurrency market will be influenced by more complex and variable factors, and the price Fluctuation is rarely driven by a single factor, requiring comprehensive analysis.

Firstly, the strength of economic recovery is one of the important factors determining market trends. If the interest rate cut policy can effectively boost the economy and improve the overall economic environment, the Cryptocurrency market is expected to benefit from it and enjoy the dividends brought by the rise in the economy. On the contrary, if economic recovery falls short of expectations and market confidence is hit, Cryptocurrency naturally cannot thrive on its own, such as during the COVID-19 pandemic in 2020, when BTC experienced a collapse along with the stock market and commodities.

Secondly, inflation pressure is another factor that cannot be ignored. Central Bank's interest rate cut is aimed at stimulating the economy, but it may also pose the risk of inflation rise. Once inflation rises, the Central Bank may adjust its policy direction and consider raising interest rates to curb inflation, which will directly pressure the Cryptocurrency market. Therefore, investors need to closely follow global inflation data and the policy trends of Central Banks in order to adjust investment strategies in a timely manner.

Furthermore, the changes in the global regulatory environment, such as the U.S. presidential election, have a profound impact on the Crypto market. With the rapid development of the market, global regulatory agencies are increasingly paying attention to it, and the regulatory approval of Spot ETFs for BTC and ETH has also brought about more long-term regulatory follow-up pressure. Therefore, the future direction of regulatory policies will directly affect the market's stability and development prospects.

Figure 4 Source: @MetaEra_Media

Despite the various long uncertainties, the opportunity brought to the Crypto market by the interest rate cut is still undeniable. We believe that the monetary easing policies of Central Banks such as the Fed are expected to provide more long-term Liquidity support for assets such as BTC and drive the continued development of the market. At the same time, with the gradual improvement of regulatory frameworks and the continuous maturation of the market, encryption assets are expected to play a greater financial value in the future, creating more long-term wealth opportunities for investors.

In short, the global Central Bank's opening of the interest rate reduction curtain undoubtedly brings new opportunities and challenges to the encryption market, which includes factors such as the increase in liquidity of Favourable Information and the increase in hedging demand, and also faces challenges from lessons learned from historical financial crises and other complex factors. We believe that despite the long and short game in market prices, under a more constructive regulatory framework and the expansion of encryption reality adoption, the innovation and application of digital assets will serve the long-term community users and unleash more long-term innovative value.

Author: Carl Y.

This article only represents the author's point of view and does not constitute any trading advice.

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