Macroeconomic Interpretation: Since last week's Federal Reserve interest rate decision, the direction of U.S. monetary policy has become the focus of global financial markets. In particular, changes in expectations for interest rate cuts in 2025 have been a source of concern for investors. As an emerging investment field, the volatility of the crypto market is closely watched. We will analyze the impact of the Federal Reserve's interest rate cut expectations on the cryptocurrency market and explore how to respond.
1. Changes in Expectations
The December FOMC meeting took a hawkish stance: At the FOMC meeting in December 2024, the Federal Reserve's hawkish position exceeded market expectations. The meeting decided to lower the federal funds rate by 25 basis points to 4.25%-4.50%, but the dot plot indicated that the interest rate cut space for 2025 was revised down to 50 basis points, a reduction of 50 basis points from the September forecast. Additionally, the meeting raised the real GDP growth forecast for 2025-2026, lowered the unemployment rate forecast, and significantly raised the PCE inflation forecast for 2025 to 2.5%.
These changes indicate a relatively optimistic outlook from the Federal Reserve regarding the economic outlook, but caution must still be exercised regarding inflationary pressures. Therefore, in future monetary policy formulation, the Federal Reserve may adopt a more cautious approach to avoid overly loose policies that could lead to uncontrolled inflation.
Market View on Interest Rate Cut Space: Following the Federal Reserve's December meeting, expectations for the Fed's interest rate cut space in 2025 have been revised down. According to Bloomberg data, the market currently predicts a total of 1.5 rate cuts in 2025, a decrease from before the meeting. This has led to a surge in the yield on 10-year U.S. Treasury bonds and the dollar index, reflecting market concerns about future monetary policy tightening.
Considering the potential tariffs under Trump's possible Tariff 2.0 policy, the market may have underestimated the space for the Federal Reserve's interest rate cuts in 2025. The impact of Trump's tariff policy is uncertain, but historically, similar policies have led to a weakening of the U.S. economy, causing a shift in the Federal Reserve's stance from hawkish to dovish. Therefore, if the implementation of Tariff 2.0 weakens economic conditions, the Federal Reserve may still increase the pace of interest rate cuts to address economic downturn risks.
2. Impact of Interest Rate Cuts on #加密市场 :
Positive Effects of Interest Rate Cuts on the Crypto Market: (1) Increased Inflows: The Federal Reserve's interest rate cuts typically mean lower borrowing costs, leading to lower bank loan rates, making it easier for businesses and individuals to access funds. This usually encourages more consumption and investment activities, accelerating economic activity. In a low-interest-rate environment, deposit returns for savers decline, leading people to withdraw funds from bank accounts in search of higher-return investment opportunities. The cryptocurrency market, especially major digital assets like Bitcoin and Ethereum, often becomes one of the choices for investors due to its high volatility and potential for high returns. Hence, against the backdrop of the Federal Reserve's interest rate cuts, the crypto market typically experiences increased inflows, thereby driving up the prices of mainstream crypto assets.
(2) Expectation of Dollar Depreciation: The Federal Reserve's interest rate cuts are often accompanied by expectations of dollar depreciation. Lowering interest rates increases the money supply, leading to a decrease in the purchasing power of the dollar. For the cryptocurrency market, this means that the prices of assets like Bitcoin and Ethereum, which are priced in dollars, may rise. Cryptocurrencies are seen as a hedge against dollar depreciation, and when the dollar weakens, investors may flock to the crypto market to protect their wealth from the declining purchasing power of the dollar.
(3) Increased Market Liquidity: Lowering interest rates means decreased borrowing costs, resulting in increased liquidity in the global market. More funds flow into the market, accelerating investment activities. A significant portion of this capital will flow into the crypto market, especially against the backdrop of global asset allocation, as institutional investors' interest in cryptocurrencies is rising. The large influx of capital helps enhance market activity, further driving up cryptocurrency prices.
3. Potential Risks in the Crypto Market: Although the Federal Reserve's interest rate cuts may temporarily boost cryptocurrency prices, they also bring potential risks. These risks primarily include market bubbles and regulatory risks.
(1) Market Bubble Risk: Interest rate cuts can lead to a large influx of capital into high-risk assets, including the crypto market. Although the influx of funds may drive prices up, if investors are overly optimistic about the market, it could lead to a significant price increase, ultimately resulting in a market bubble. Once the market bubble bursts, prices may plummet sharply, causing significant losses for investors.
(2) Regulatory Risk: As cryptocurrency prices soar, governments and regulatory agencies may increase their scrutiny of the crypto market. The uncertainty of regulatory policies can introduce instability into the market, potentially leading to increased price volatility. Moreover, some countries may implement stricter laws and regulations to restrict the trading and use of cryptocurrencies, which could also impact the crypto market.
Data Analysis:
Current data shows that the top five positions are #BTC , #ETH , HYPE, SOL, and XRP; there is not much change in the top five trading volumes compared to holdings, with the fifth place slightly different, as XRP is pushed down with SUI taking its place. This indicates that SUI has a higher turnover rate than XRP, suggesting that SUI attracts more short-term speculative funds and has a shorter holding cycle.
