1. The impact of the Fed's interest rate hikes, interest rate halts, and interest rate cuts
First of all, we need to clarify a concept: funds are not fixed, but flow dynamically according to interests, so there is no absolute situation.
Interest rate hike: will affect the outflow speed of liquidity funds in the cryptocurrency circle
Stop raising interest rates: Funds in the cryptocurrency market will continue to flow out at a high speed
Interest rate cuts: will affect the speed of liquidity inflows into the cryptocurrency market until it reaches a critical point
Interest rate hike: It opens a gap at the bottom, and the gap gets bigger the more interest rates are raised.
Stop raising interest rates: This hole will not widen, but it is still leaking
The interest rate cut makes the hole smaller, and the outflow becomes smaller, until the critical point when the outflow hole disappears. Funds reverse and start to pour water into the pool.
2. Impact of BTC ETF and ETH ETF
Now that the BTC spot ETF has been approved and the ETH spot ETF is about to be approved, does the above logic still hold true? In July 2023, the Federal Reserve raised interest rates for the last time, with the final interest rate being 5.5%, which has continued to this day.
Then it meets this requirement: [Stop raising interest rates]
1. This hole is not expanding, but it is still leaking, so the currency market has been falling.
2. But as time goes by, the leaking pipe becomes thinner and thinner until it reaches a balance point
Since the impact of the Fed’s interest rate has reached a balanced state, the cryptocurrency market will neither rise nor fall because of it, so the approval of the BTC spot ETF is pure incremental funds, but compared to the real funds brought in by the interest rate cut, it is still a small pipe. Final conclusion: The approval of the BTC ETF has brought a small bull market, but the amount of funds is still too small.
3. Game issues of human nature and game theory
I don’t really want to talk about this part. You may be quite interested in the first two parts, but I guess no one will read this part. There are many smart people in the currency circle, so many people understand the above principles, especially large funds, so it involves the game of human nature (in plain words, it is a head start)
Expectations of interest rate cuts: lead to a temporary inflow of funds, causing the price of the currency to rise
The interest rate cut has been implemented: causing a temporary outflow of funds and a short-term drop in the price of the currency
Expectations of interest rate hikes: causing temporary capital outflows and a drop in the price of the currency
The implementation of the interest rate hike: leads to a temporary inflow of funds, resulting in an increase in the price of the currency. Note that the above is the actual situation + expectation. The expected game is a short-term price reflection, which can be verified in the past charts. However, the long-term logic is still based on the previous two logics. I suggest that you do not play short-term, and I do not recommend playing contracts. #BTC