The CPI data released today showed an annual growth rate of 2.9%, slightly lower than the market expectation of 3.0%. Although the core CPI data was in line with expectations, the market's response was a slight correction, which may be interpreted as the end of the good news or the intentional dumping of the main funds. However, whether the market is affected by good news or bad news, a balanced investment strategy is the key to resist market fluctuations.
According to FedWatch data, the market currently expects a 62.5% chance of a 25 basis point rate cut at the September 18 FOMC meeting, while a 37.5% chance of a 50 basis point rate cut. Overall, the probability of a rate cut at the September meeting is 100%.
Looking at the expectations for the November meeting, the probability of a 50 basis point rate cut is 44.4%, and the probability of a 100 basis point rate cut is 44.7%. At the end of the year, the market expects a 100 basis point rate cut at the December 18 meeting, which means that at least three rate cuts are expected by the end of the year.
Why interest rate hikes and cuts affect Bitcoin prices
At this point, some readers may be wondering why the market falls when the Fed raises interest rates, but rises when the Fed cuts interest rates? Let’s take a look at the following superimposed chart of the Fed interest rate (USINTR) and the Bitcoin price (BTCUSD).
Since the birth of Bitcoin, the Federal Reserve has maintained an ultra-low interest rate of approximately 0.25. During the period of the Federal Reserve's interest rate increase in 2015, Bitcoin was not initially affected. The reason for this is that the market value of Bitcoin was still relatively small at the time, and institutional funds did not pay much attention to it, so it is not of reference value.
But as time goes by, the rise in interest rates and the fall in Bitcoin prices show a certain correlation. After the Federal Reserve cut interest rates in 2019, the price of Bitcoin rose; and after entering the interest rate hike cycle in February 2022, as interest rates rose, the price of Bitcoin began to slowly fall.
In addition, the comparison of historical data K-line charts shows that there is a certain degree of correlation between Bitcoin prices and the Federal Reserve interest rate. When the two trends intersect, it often indicates a new trend in the Federal Reserve's policy, which may indicate that Bitcoin and even the entire cryptocurrency market are about to usher in a major turning point or outbreak point.
Conclusion:
However, it is important to have a long-term vision when investing, rather than just focusing on short-term market fluctuations. It is very dangerous to only look at short-term market forecasts. We should grasp the general trend of the market, rather than being swayed by short-term speculative mentality. Because the final direction of the market is unpredictable, but by understanding and following the general trend, we may be able to grasp the wealth opportunity that changes our lives.
Therefore, investors should not pay too much attention to short-term price fluctuations, frequently guess short-term market trends and use leverage operations, which may lead to investment losses or failures. The right approach is to develop a balanced strategy and stick to it to achieve long-term investment returns.
