What impact will the 2024 rate cut have on the crypto market?
1. Will the rate cut directly benefit the crypto market?
While many believe that rate cuts will increase market liquidity, reduce borrowing costs, and potentially boost cryptocurrency prices, economic uncertainty during rate cuts may prompt investors to turn to safe-haven assets such as Bitcoin, however, concerns about a potential recession remain!
Institutions generally believe that the market may experience significant volatility during rate cuts. During the 2008 financial crisis, even the Fed's initial rate cuts failed to prevent the market from falling sharply after a brief rebound. The crisis stemmed from the bursting of the Internet and real estate bubbles, which led to a severe economic recession.
Whether the current rate cuts will repeat the same mistakes and trigger crises such as the artificial intelligence bubble or the US debt crisis, dragging down the crypto market, remains to be seen.
In the short term, global central bank rate cuts, including those by the Federal Reserve, are a shot in the arm for global financial markets and crypto markets. Expectations of rate cuts will boost market liquidity and optimism, which may trigger a rebound in the crypto market and provide investors with opportunities for quick profits. In the long run, crypto market trends are affected by more complex factors.
2. Price fluctuations are not driven by a single factor, but require a comprehensive analysis:
Market trends depend on the strength of economic recovery. If interest rate cuts stimulate economic growth, the crypto market may benefit; on the contrary, if the recovery falters, market sentiment will weaken, which will affect cryptocurrencies. Secondly, we need to consider the factor of inflation.
The central bank's interest rate cuts are aimed at stimulating the economy and boosting consumption, but they may also lead to inflation risks such as rising prices. Subsequently, rising inflation may in turn prompt the central bank to raise interest rates, thereby exerting new pressure on the crypto market.