The much-anticipated interest rate cut by the Federal Reserve has finally come to fruition. Not only did the rate cut exceed many people's expectations, but the magnitude of the cut was 50 basis points instead of 25 basis points.
Therefore, there has been more heated discussion online about the impact of interest rate cuts.
Regarding the interest rate cut, I shared a little more than before in the recent online exchange. My views can be summarized as follows:
After studying and sorting out this period of time, I tend to think that for the crypto ecosystem, we should not take the impact of interest rate cuts too seriously, especially not to deviate from the focus and attention. The focus and attention of the crypto ecosystem is still innovation and invention within the ecosystem. The easing of the external environment is icing on the cake, but it is not a timely help.
So I haven't paid much attention to the news about interest rate cuts before. However, among the many online articles, I still found some points of view worth sharing.
A domestic brokerage firm issued a research report on this interest rate cut, which summarized the impact of the Federal Reserve’s historical interest rate cuts on US stocks, gold, A shares and the RMB exchange rate.
The Federal Reserve’s interest rate cuts can be roughly divided into two categories: relief-style cuts and precautionary cuts.
The so-called relief-style interest rate cuts are mainly triggered by certain unexpected situations or emergencies, with the purpose of saving the market from further deterioration, such as the bursting of the Internet bubble in 2001, the subprime mortgage crisis in 2008, and the epidemic in 2020.
Preventive interest rate cuts are mainly to prevent possible downturns or recessions, with the aim of stabilizing the economy and employment.
Generally speaking, relief-style interest rate cuts are larger in magnitude and more frequent, while preventive-style interest rate cuts are relatively smaller in magnitude and less frequent.
Since 1982, the Federal Reserve has made a total of five preventive rate cuts. Except for the one in 1987, the other four rate cuts were only three times, and the total amount did not exceed 81 basis points.
Since 1982, there have been a total of 9 interest rate cuts (including 4 bailout cuts and 5 preventive cuts).
The probability of U.S. stocks rising is more than 60%;
The probability of gold rising is close to 60%;
The probability of A-shares rising is less than 50%;
The RMB only rose once, and otherwise it either remained unchanged or fell.
The above are the main results shown in this research report.
Digging into the data in this research report carefully, we can find some additional information:
In the past five preventive rate cuts, except for the one in 1987, the highest rate cut was only 81 basis points. This preventive rate cut has dropped by 50 basis points. Based on past historical data, I guess the Fed will not continue to cut interest rates by too much in the future.
If this guess happens to be correct, then after the interest rate cut is completed, the US interest rate will remain high and still lead the interest rates of major currencies in the world. This will bring huge pressure to other countries in the long term, resulting in US dollar assets may still be very attractive assets.
In addition, if the total magnitude of this round of interest rate cuts is not large, then the amount of money that can be released will not be much. Therefore, it is probably unrealistic to expect the next financial assets (including crypto assets) to rely on the Fed's money release to blow up a big bubble.
The interest rate cut has certainly provided a loose funding environment for all financial assets, but will funds necessarily flow into all financial assets?
I think the key is to see whether a certain type of financial asset has room and potential for future growth in the eyes of investors. If there is potential, funds will most likely flow in; if there is no potential, then no matter how low the price is, funds may not flow in.
From this point of view, when we look at crypto assets, the key is whether they have room and potential for future growth in the eyes of investors (especially big funds).
So what is the key to judging whether crypto assets have room and potential for future growth?
Especially when crypto assets are facing competition from U.S. stocks, I think the only thing that matters is whether new applications and ecosystems can emerge within the crypto ecosystem.
If there is still no application innovation as it is now, at most the U.S. stock market will make money while crypto assets will just drink soup.
All in all, I still think that from the perspective of crypto assets, we should not have unrealistic and excessive expectations for the Fed’s interest rate cuts.