The U.S. dollar interest rate hikes that began in 2022, along with the U.S.-initiated global political conflicts, have led to an overall acceleration of the dollar’s return to the U.S. This two-year monetary policy has finally begun to end recently.
On the one hand, US inflation has gradually been brought under control. On the other hand, the urgent shrinking US labor market and declining economic data have forced the hawkish Powell to make a statement: start considering lowering interest rates!
Historical article: Powell will make an important speech tonight. What will happen next if the crypto bull market restarts?
Regarding the review of interest rate cuts, we have also done a historical article review: Off the charts, after reviewing all the previous US dollar interest rate cuts, the US stock market has plummeted? ! Crypto assets are in turmoil?
The impact of the Federal Reserve's decision to cut interest rates on various assets is significantly different. The impact on assets with strong monetary attributes such as gold is particularly direct, while the impact on the industrial products market and the stock market is relatively mild.
Gold price performance during previous interest rate cuts
A shares
At present, this round of Fed rate cuts may be similar to the situation in 2019, that is, against the background of slowing US economic growth, the overall rate cut may be relatively limited, showing the characteristics of a preventive rate cut. For the A-share market, although external factors will cause disturbances, internal factors are decisive. Taking the Fed's rate cut in 2019 as an example, the sharp rebound of the A-share market occurred at the beginning of 2019 when Powell said that he would stop raising interest rates, rather than the formal rate cut stage (from August to October 2019, the Fed lowered the federal funds target rate from 2.25%-2.5% to 1.5%-1.75%, with a total rate cut of 75BP). This is mainly because the main factors that suppressed the A-share market in 2018 (tight credit deleveraging, Sino-US trade frictions, Fed rate hikes, etc.) were effectively alleviated in early 2019, and internal and external factors formed a resonance. However, on April 12, 2019, the Monetary Policy Committee of the Central Bank proposed "keeping a good money supply gate" at the first quarter meeting of 2019, which led to the convergence of domestic easing expectations. Therefore, from April 2019 to the end of the year, the A-share market as a whole showed a volatile pattern, which manifested more as structural opportunities.
Performance of the Shanghai Composite Index during previous interest rate cuts
Impact on Bitcoin:
Because Bitcoin has a short history, it has only experienced interest rate cuts in 2019 and 2020, which was a bear market in the crypto market. Historical references are not very meaningful. At the TOKEN2049 conference, Arthur Hayes, founder of the world's largest cryptocurrency contract exchange, expressed his view that the market may collapse after the interest rate cut, but Ethereum may perform well.
Hayes said there is about a 60% to 70% chance that the Fed will choose a 75 or 50 basis point rate cut. Hayes made an interesting prediction about the prospects of ETH, believing that the decline in US Treasury bond rates may indeed make high-yield tokens more attractive. He compared Ethereum to "Internet bonds" and further analyzed its potential. He emphasized the Japanese yen many times and reminded everyone to pay attention to the exchange rate between the US dollar and the Japanese yen, "this is the only thing that matters."
However, I don’t quite agree with this view. First of all, 75 basis points is highly unlikely. Rate cuts should be a slow and long process, intended to stimulate rather than quickly release funds. Secondly, I don’t quite agree that the market will collapse. The crypto market has just experienced a bear market from 2021 to 2023. If the bear market didn’t collapse, why would it collapse now?
Previous bull markets were all caused by the continuous innovation of developers within the cycle. This round lacks innovation, but innovation is caused by individual developers and is constantly imitated. I think this kind of thing will be resolved as the infrastructure develops and more developers find the crypto market profitable.
Regarding the risk of Bitcoin's pullback, the current gap is CME's 53,000-54,000 US dollars. In the long run, I think the market as a whole is relatively optimistic!
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(The crypto market is volatile, this is just a sharing of opinions, not investment advice)
