After the U.S. Federal Reserve (Fed) concluded its latest FOMC meeting on the 1st, it maintained the federal benchmark interest rate at 5.25% to 5.5% for the eighth time, as expected by the market. Fed Chairman Powell also confirmed at the press conference that the long-awaited rate cut is imminent.

UK cuts interest rates for first time in four years

In addition, the Bank of England (BOE) also released its latest interest rate decision later on the 1st, announcing that the benchmark interest rate would be cut by one basis point from 5.25% to 5%, the first interest rate cut since the outbreak of the new crown epidemic in 2020.

Bitcoin briefly fell below $63,000

We know that after Bitcoin and Ethereum spot ETFs were approved for listing by the U.S. SEC, and after Bitcoin completed its fourth halving in history in April, interest rate cuts are considered to be another major positive factor stimulating the rise of the cryptocurrency market.

However, after the Fed announced the interest rate cut and the Bank of England officially started the interest rate cut, Bitcoin not only lacked the momentum to rise, but continued to fall after 21:00 last night, reaching a low of $62,280, and even fell to the key position of $60,500 this morning, almost falling below the $60,000 mark. Currently, it has rebounded slightly to around 61,500, but the sentiment is still not optimistic.

After rising the day before yesterday, US stocks also fell sharply last night. The semiconductor sector was particularly bad, with Nvidia falling 7% and Arm plummeting 15%.

The US is about to cut interest rates, and the UK has cut interest rates, but why is Bitcoin falling?

Will the market fall after the interest rate cut?

Many investors may be frustrated. Why is it that the market has not responded to the increasingly clear expectations of interest rate cuts, but has instead fallen? Can interest rate cuts really stimulate the venture capital market every time?

Let’s take a look at what happened to the stock market after the Federal Reserve’s first rate cut.

decline:

The COVID-19 pandemic in 2020 caused a sharp drop in the stock market after the interest rate cut, but it rebounded quickly.

Before the 2008 financial crisis, interest rates were cut, and then the stock market plummeted.

During the dot-com bubble in 2000, the SP500 index also fell in tandem with interest rates.

rise:

In 1995, the stock market rose after the interest rate cut

In 1989, the stock market rose slightly after the interest rate cut

The stage of stopping interest rate hikes is mostly rising

It is worth noting that we can find that in each cycle, the S&P500 has mostly shown an upward trend in the stage when interest rate hikes have stopped. It rose by nearly 20% in 1995 and 2006. The high interest rates maintained after August 2022 also allowed US stocks to continue to set new highs. When interest rates really began to cut, a higher proportion of them fell.

One possible reason is the psychology of expectation: when interest rate hikes are stopped, the mentality of expecting interest rate cuts comes into play in advance, just as the market has often claimed that interest rate cuts are imminent in the past year. Every time you see Powell constantly stating that the economic data will be the basis, once the interest rate is actually cut, the market has already reacted in advance, and it is easy for the positives to be exhausted.

On the other hand, the Fed has initiated interest rate cuts many times because of more serious economic problems, forcing the Fed to loosen monetary policy, which is not good news for the investment market.

Back to this round of interest rate cuts, although the background of this rate cut is basically to return to normal, it cannot be ruled out that investors may sell assets due to potential expectations of "economic recession". Therefore, investors cannot simply think that interest rate cuts will definitely stimulate the stock market (or risk market) to rise based on the crazy market conditions after the epidemic.

The market fluctuates greatly in the short term, but is bullish in the long term

Therefore, although historical data shows that interest rate cuts are generally bullish for risk markets in the long run, it may take months to years for the fermentation period to break out of the rising market; short-term fluctuations are difficult to predict, and the market may reverse and fall instead. Bitcoin's decline last night may also be the first to fluctuate as a leading indicator, and how the market will perform in the future remains to be seen.

At the same time, everyone must do a good job of risk control and not blindly believe that the market will go up all the way and invest funds using leverage just because the Federal Reserve really starts raising interest rates.

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