Interest rate cuts are usually in response to slowing economic growth or inflationary pressures. When the economy is in trouble or faces the risk of recession, interest rate cuts can significantly reduce borrowing costs, making it cheaper to "obtain funds", thereby effectively stimulating economic recovery.
The loose policy not only increases liquidity in the market, but also indirectly reduces the cost of holding cash.
At this time, investors are more inclined to look for markets with higher returns, which not only pushes up the prices of traditional assets such as the stock market, but also has a positive impact on the risk asset market. As a high-risk and high-return investment tool, Bitcoin is naturally popular among investors!
The market reaction to an interest rate cut usually has a "lag period": generally speaking, the market starts to rise about 1 to 3 months after the interest rate cut.
Since the end of last year, interest rate cuts have become one of the core stories of this bull market. Although the financial market has long speculated on the expectation of interest rate cuts, and there is a view that interest rate cuts have been "internalized in prices", everyone is still most concerned about: once the interest rate cuts actually begin, when will they trigger a rally?
Looking back at Bitcoin’s performance in previous interest rate cut cycles, we find that the price increase does not come immediately, but there will be a certain lag.
According to historical experience, this lag period is generally between 1 and 3 months, and the specific length depends on how quickly the market digests the interest rate cut policy and the overall situation of the global economy.
The interest rate cut cycle after the 2008 financial crisis
Trade war and economic slowdown in 2019: It took 6 to 8 months after the interest rate cut cycle began for the market to start to pick up, and then it soared by an astonishing 250% in half a year!
2020 COVID-19 Rate Cut Cycle: After just one month, the market began to recover and soared 500% in the next 8 months!
In 2020, the COVID-19 pandemic swept the world, shutting down important global supply chains and causing sharp inflation. In response to this impact, the Federal Reserve urgently cut interest rates from March, pushing interest rates to near zero.
However, the initial market plunged due to panic sentiment, and Bitcoin fell to a low of around $4,000 in March 2020.
As the Federal Reserve injected liquidity and market expectations for economic recovery gradually heated up, Bitcoin rebounded strongly from April and broke through the historical high of US$20,000 at the end of the year.
Therefore, combined with this trend, we can boldly predict that after the first interest rate cut in 2024, the financial market may begin to gradually rise between October and December!
Bitcoin market performance after the 2008 global financial crisis
Bitcoin was just created in 2009, when the price was almost zero, so it is impossible to calculate the specific increase. However, starting from the early 2010s, the price of Bitcoin soared from a few cents to more than $1,000 in 2013, this increase reflects the market's strong demand for new assets.
Trade war and economic slowdown in 2019, interest rate cut cycle
In 2019, Bitcoin prices rose on expectations of rate cuts, soaring from about $3,800 at the beginning of the year to a high of about $13,000 in June, an increase of more than 240%. Although the impact of the trade war caused prices to retreat in the second half of the year, it still remained at about $7,000 at the end of the year.
2020 COVID-19 Rate Cut Cycle
In 2020, Bitcoin fell to about $4,000 in March, but with the implementation of the interest rate cut policy, the price rebounded quickly, breaking through $20,000 by the end of the year, an increase of more than 400%. The loose monetary policy continued to drive Bitcoin to a record high of $65,000 in 2021.
According to these data, the increase in Bitcoin after a rate cut can usually reach hundreds of percentage points, which is consistent with the institution’s previous forecast of 100,000 to 150,000!
How long will Bitcoin's rally last after the rate cut?
Bitcoin's rise in a rate cut cycle usually lasts for several months to a year, depending on market liquidity, investor risk appetite, and economic fundamentals. For example, in 2020, Bitcoin rebounded from its low in March and continued to rise to its high in April 2021, with a total increase of more than 1,500%.
Ethereum Foundation Updates
Recently, the Ethereum Foundation has once again sold off ETH, a move that has exacerbated the decline in ETH prices. So, how long can the Ethereum Foundation's funds last? How will Ethereum's future develop? These are questions that investors are eager to pay attention to.
1. ETH Price Performance
In this bull market, Bitcoin has successfully broken through the historical high of the previous bull market, but Ethereum (ETH), the world's second largest cryptocurrency, has not yet achieved a breakthrough.
Ethereum's historical highest price occurred in November 2021, at about US$4,800. In this bull market, ETH's highest price only reached about US$4,000 in March this year, far from breaking the historical record.
Currently, the price of Ethereum (ETH) is around $2,400, down 40% from its March high.
While ETH’s 40% drop may seem quite solid compared to other altcoins’ 70% drops, Ethereum, the pioneer of smart contracts and the world’s second-largest cryptocurrency, has failed to live up to the market’s high expectations.
Ethereum’s price trend not only has a significant gap compared with Bitcoin (BTC), but is also far below investors’ psychological expectations. This price performance is undoubtedly disappointing and unacceptable to holders.
2. Ethereum Foundation continues to sell
In 2024, the Ethereum Foundation sold ETH at least 6 times. On August 24, the foundation sold as many as 35,000 ETH.
Judging from the sales record of the Ethereum Foundation (EF), every time the foundation sold ETH, the price of ETH almost always fell, or in other words, many sales happened at periodic price highs, leading some people to jokingly call the foundation a "coin selling expert."
As a non-profit organization dedicated to supporting the development of Ethereum and related technologies, the Ethereum Foundation's main mission is to provide funding and support for innovative projects within the community.
Since it is essentially an organization that constantly needs to spend money, it is inevitable to sell ETH to fund ecological development. In order to maximize profits, the foundation naturally hopes to sell ETH at a high price.
However, for ETH holders, the Foundation's selling behavior is often interpreted as pessimism about the future of ETH, which further shakes the confidence of holders and exacerbates the price drop of ETH. In the case of the continued sluggish ETH price, the Foundation's selling is undoubtedly adding insult to injury.
Some ETH holders even began to worry about how long the foundation could sustain its funds if it continued to sell off ETH. If the foundation sold all ETH, how could it continue to support the development of the Ethereum ecosystem in the future?
On September 5, Justin Drake, a core researcher at the Ethereum Foundation, responded that the foundation's current annual budget is about $100 million, and according to current prices, the foundation still holds $650 million in ETH in its wallet. Roughly estimated, these funds can cover the budget for the next 10 years.
Conclusion: Potential performance of Bitcoin and Ethereum after the 2024 rate cut
Summarizing past experience, we can draw the following conclusions:
- Bitcoin performs well: Looking back at the past two interest rate cut cycles, the price increase of Bitcoin has exceeded that of US stocks, and Ethereum may usher in a catch-up rally.
- Lag observation: The market usually starts to show an upward trend 1 to 3 months after a rate cut, and it is expected that this rule may continue to be valid in 2024.
- Durability of the upswing cycle: Previous rate cut cycles have brought sustained upswings lasting from a few months to nearly a year.
- Increase expectations: In the past two interest rate cut cycles, Bitcoin's increase was 240% and 400% respectively. In this interest rate cut cycle, Bitcoin is expected to exceed 100% increase, that is, more than $100,000. Ethereum is likely to exceed $10,000.
It should be noted that Bitcoin prices are highly volatile, and the actual size and duration of gains may be affected by market sentiment and the macroeconomic environment.
The article will be shared here for now; if you want to know more exciting events in the circle, you can join the community for consultation!
