The Wave of Interest Rate Cuts is Coming, will the Market Hit Bottom and Reverse?

2024-07-16, 09:18

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![](https://gimg2.gateimg.com/image/article/17211209211690791857hotspot.jpeg)
## [TL；DR]: 
After the release of CPI data in June, the market generally expects the Federal Reserve to take interest rate cuts in September, and Federal Reserve officials have also publicly stated that the timing for interest rate cuts is approaching.

In the short term, the global central bank interest rate cuts represented by the Federal Reserve undoubtedly inject a shot in the arm into the crypto market. With the significant increase in market liquidity, the expectation of interest rate cuts will directly trigger market <a href="/price/optimism-op" target="_blank" class="blog_inner_link">Optimism</a>.

The interest rate cuts initiated by global central banks have brought new opportunities and challenges to the crypto market, requiring investors to analyze comprehensively and participate rationally.

## Introduction
Recently, the Bank of Canada and the European Central Bank have cut interest rates ahead of the traditional path when inflation did not meet their expected control targets, in response to the global economic slowdown and economic pressures on various countries. Although the Federal Reserve has not officially cut interest rates yet, given the significant slowdown in inflation data in the past three months, Fed officials have hinted that the timing is ripe for a rate cut. The market expects the Fed to initiate a rate cut in September, and the crypto market is rebounding due to expectations of loose liquidity. This article will explore this in detail.
 
## Europe Cuts Interest Rates First, the Federal Reserve is about to Follow Suit
Recently, as followers of this round of interest rate hikes, the Bank of Canada and the European Central Bank have taken the lead in choosing to cut interest rates in response to the global economic slowdown and the multiple economic pressures faced by various countries when inflation is above target.

Although the European Central Bank has taken the first step of cutting interest rates, the Federal Reserve has not yet cut rates. However, with the June CPI data turning negative for the first time in four years and core year-on-year growth hitting a new low in over three years, the time for Federal Reserve officials to publicly announce interest rate cuts is approaching. The market generally expects the Federal Reserve to start taking interest rate cuts in September.
 ![](https://gimg2.gateimg.com/image/article/17211210701.jpg)
Source: AICoin
 
In fact, Federal Reserve Chairman Powell's recent speeches on inflation and the economic situation have revealed the Fed's subtle attitude towards policy adjustments. In his statement this week, he further stated that the slowing trend of inflation and economic activity is basically in line with the expectations of the Federal Reserve, especially the inflation data in the second quarter, which has to some extent strengthened the market's confidence in the decline of inflation, especially the steady decline in the rate of price increase towards the 2% target set by the Federal Reserve, indicating that the window for interest rate cuts may be about to open.

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 interest rates.

The market strongly reacts to this dovish tone, with CME's FedWatch tool showing that the market generally expects the Federal Reserve to announce a rate cut at its September policy meeting, and this expectation is almost 100% certain.

It is worth mentioning that this week the market will closely monitor key economic data such as retail sales, industrial output, and weekly unemployment claims in the United States for June. These data are expected to provide more clues for evaluating the strength of the US economy and further affect market expectations for the timing of the Federal Reserve's interest rate cuts. Gate Research will also continue to follow up and analyze for everyone.

Overall, with the easing of inflationary pressures and the adjustment of economic growth expectations, the Fed's interest rate cuts have become a common consensus in the market, which is undoubtedly a long-awaited positive signal for the crypto market.
 
## Will Interest Rate Cuts Directly Benefit the Crypto Market? Yes or No
Although the market is currently filled with interpretations about the positive impact of interest rate cuts on the crypto market, we have also seen some cautious analysis.

Generally speaking, interest rate cuts are seen as a catalyst for increased market liquidity, as the reduction in borrowing costs can stimulate investors' investment enthusiasm. This increase in liquidity often penetrates into emerging markets such as cryptocurrencies, 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 <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>, due to their unique characteristics of decentralization, fixed supply, and ease of preservation, have gradually become new safe haven options, naturally further enhancing their market attractiveness and price.

Although the market is full of expectations for interest rate cuts, many institutions generally believe that caution is necessary in the complex and volatile market environment. For example, Morgan Stanley strategists predict that the US stock market may experience a 10% pullback, while Goldman Sachs expects a large amount of funds to <a href="/price/flow-flow" target="_blank" class="blog_inner_link">Flow</a> out of the US stock market in August, waiting for the election results to become clear.
 ![](https://gimg2.gateimg.com/image/article/17211211382.jpg)
Source: Bloomberg
 
This cautious attitude is mainly based on concerns about the possible recession of the US economy. During the financial crises of 2001 and 2008, although the Federal Reserve implemented interest rate cuts in the early stages, the market briefly reached a high point and then encountered a sharp downward trend. Even if the Federal Reserve quickly and significantly lowered interest rates, it failed to effectively curb the further spread of the crisis. The root causes of these two crises can be traced back to the bursting of the Internet foam and the real estate foam, which caused a deep recession impact on the economy.

As for whether the current interest rate cut policy will repeat the mistakes and trigger the outbreak of such as the artificial intelligence foam or the US debt crisis, which will further drag down the crypto market, we should remain vigilant.
 
## Under the Disturbance of Multiple Factors, the Crypto Market May Steadily Rise
In fact, in the short term, the global central bank interest rate cuts represented by the Federal Reserve undoubtedly inject a shot in the arm into the crypto market. Undoubtedly, with the significant increase in market liquidity, the expectation of interest rate cuts will directly trigger market optimism, which may lead to a short-term upward trend in the crypto market, providing investors with opportunities for quick profits.
 ![](https://gimg2.gateimg.com/image/article/17211211913.jpg)
Source: Gate.io
 
 However, in the long run, the trend of the crypto market will be influenced by more complex and variable factors, and price fluctuations are 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 crypto market is expected to benefit from it and enjoy the dividends brought by economic growth. On the contrary, if the economic recovery is not as expected and the market confidence is frustrated, cryptocurrency will also be difficult to survive. For example, during the COVID-19 pandemic in 2020, Bitcoin also suffered a 312 crash due to the stock market and commodities.

Secondly, inflationary pressure is another factor that cannot be ignored. The central bank's interest rate cut aims to stimulate the economy, but at the same time, it may also trigger the risk of rising inflation. Once inflation remains high, the central bank may adjust its policy direction and consider raising interest rates to curb inflation, which will directly put pressure on the crypto market. Therefore, investors need to closely monitor global inflation data and central bank policy movements in order to adjust their investment strategies in a timely manner.

Furthermore, the US presidential election and changes in the global regulatory environment have profound impacts on the crypto market. With the rapid development of the market, global regulatory authorities are paying increasing attention to it. While spot ETFs of Bitcoin and <a href="/price/ethereum-eth" target="_blank" class="blog_inner_link">Ethereum</a> are recognized by regulators, it also brings more regulatory pressure. Therefore, the future direction of regulatory policies will still directly affect the stability and development prospects of the market.
![](https://gimg2.gateimg.com/image/article/17211212714.jpg)
Source: @MetaEra_Media

Despite many uncertainties, the opportunities brought by interest rate cuts to the crypto market cannot be ignored. We believe that the monetary easing policies of central banks such as the Federal Reserve are expected to provide more liquidity support for crypto assets such as Bitcoin, promoting sustained market development. Meanwhile, with the gradual improvement of regulatory frameworks and the continuous maturity of the market, crypto assets are expected to exert greater financial value in the future, creating more wealth opportunities for investors.

In short, the interest rate cuts initiated by global central banks undoubtedly bring new opportunities and challenges to the crypto market, including favorable factors such as increased liquidity and increased demand for hedging, as well as challenges from the lessons of historical financial crises and other complex factors. Although there is always a long short game in market prices, innovation and application of digital assets will serve more community users and unleash more innovative value in the context of more constructive regulatory frameworks and expanded adoption of crypto reality.

<div class="blog-details-info">
<div>Author:**Carl Y.**, Gate.io Researcher
<div>Translator:Joy Z.
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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