1. Bitcoin is mainly bullish in Q4, with the next target at $64,000. Is there any hope that it will break through $73,000 before November?
There is nothing much to say about this market. I said it yesterday. The winner will be decided today. The outcome is clear. Bitcoin is bullish! The daily line broke through the downward trend line.
The head and shoulders bottom at the four-hour level is also stable.
The next step is to look at the next neckline of $64,000 and go long on dips.
The points given are approximately 61,800 or 61,300 US dollars to rebound and cover positions.
Today's increase is partly due to Bitcoin's own efforts and partly due to the 50 basis point interest rate cut. So we will focus on the latter in this article.
2. Why choose to cut interest rates by 50 basis points? A defensive rate cut!
This has to do with the Federal Reserve spokesman Nick’s tweet on September 18, which used an interesting term called “minimizing regret.”
What is regret minimization? If the Fed cuts interest rates by 50 basis points in September and expects to continue to cut interest rates, then if the economy performs smoothly before the November interest rate meeting and there are no negative effects, the Fed will not regret choosing to cut interest rates by 50 basis points. However, if the Fed chooses to cut interest rates by only 25 basis points, and if the economic situation deteriorates in the following period, the Fed is likely to regret it because their actions lag behind the situation.
Risk aversion is the biggest preference of policymakers. Although the current economic data is better than expected, it is lagging after all. If the subsequent data shows a recession, a 25 basis point interest rate cut will not be strong enough, and then there will be a worse option - an emergency interest rate cut. Of course, if the economy is indeed strong, the magnitude and rhythm of subsequent interest rate cuts can be adjusted.
3. Can interest rate cuts usher in a bull market in the crypto space?
Since the crypto industry has only been around for more than a decade, although it has experienced two interest rate cuts in the past, the scale in 2008 was insignificant, and in 2020 it encountered the black swan example of the epidemic. It can be said that historical data is insufficient, so we can only compare the impact of historical interest rate cuts on US stocks and gold.
The U.S. stock market is a risky market, gold is a safe-haven market, and the cryptocurrency giant Bitcoin is somewhere in between. When it does not reach or approach the size of gold, it tends to be a risky market, mainly looking at the room for value-added. If the size is large enough, it tends to be a safe-haven market, mainly looking at the room for preserving value against the depreciation of the U.S. dollar.
Take the last three times, for example.
Since 2000, the Federal Reserve has carried out three interest rate cut cycles, and the corresponding start and end time periods are:
The first round of interest rate cuts: starting in January 2001, the federal funds rate was 6.5%; ending in July 2003, the federal funds rate was 1%, with a total rate cut of 550 basis points. During this period, the U.S. dollar index fell by 11.36%, hitting a low of 91.88, which is consistent with the logic that loose monetary policy leads to currency depreciation; gold rose by 30.81%, fluctuating in the opposite direction of the U.S. dollar index, which is also consistent with basic logic. After the end of the interest rate cut, gold coincided with the passage of ETFs, and thus ushered in a decade-long bull market, soaring from $380 per ounce to $1,500, a four-fold increase. It should be noted that gold was already a mainstream asset before the surge.
However, such a drastic loose policy failed to boost the US stock market. The Dow Jones Index unexpectedly fell by 19.69%. What was the reason? Since March 2000, the Internet bubble burst and the Nasdaq index turned from rising to falling. The Federal Reserve realized that the current high terminal interest rate was not conducive to the recovery of the stock market, so it started to cut interest rates rapidly. Therefore, it was not the interest rate cut that caused the stock market to fall, but the occurrence of the stock market crash indirectly led to the occurrence of interest rate cuts.
After the interest rate cut, the US stock market ushered in a five-year bull market.
The second round of interest rate cuts: starting time 2007-10, the federal funds rate was 5.25%; ending time 2009-01, the federal funds rate was 0.25%, a total rate cut of 500 basis points. During this period, the US dollar index did not fall, but soared by 10.43%, reaching a high of 88.46. What was the reason? After careful observation, it was found that the US dollar index first depreciated sharply and then appreciated in this round of interest rate cuts. The critical point is that the euro zone's macroeconomic performance is worse than that of the United States, and the depreciation of the euro has led to a sharp rise in the US dollar. Gold soared 23.79% in this round of interest rate cuts, which is in line with the risk aversion logic.
The Dow Jones plummeted 42.42%, which was obviously affected by the financial crisis. So although it plummeted during the interest rate cut cycle this time, just like the last time, the interest rate cut cycle started during the economic crisis triggered by the plunge in US stocks.
After the interest rate cut, the U.S. stock market ushered in a 10-year bull market.
We are more familiar with the third round of interest rate cuts: starting time 2019-07, the federal funds rate was 2.5%; ending time 2020-04, the federal funds rate was 0.25%, a total rate cut of 225 basis points. The U.S. dollar index rose again instead of falling, with an increase of 3.02%. What is the reason? In fact, this is a mistake caused by the statistical method, because after the Federal Reserve lowered its benchmark interest rate to 0%~0.25, it could no longer be lowered, and then the QE quantitative easing policy was launched. If the QE time is taken into account, the U.S. dollar index has actually depreciated significantly, reaching a low of 89.20 points. Gold rose by 19.87%, which is in line with the risk aversion logic.
But when the U.S. stock market hit new highs, gold stagnated this time and fluctuated widely from 2021 to 2023. It was not until the second half of 2023 that several local wars broke out around the world and gold began to grow again. The rational review we can get from this is that gold, as a large asset with a volume of 14 trillion U.S. dollars, has no narrative except consensus. Therefore, it is not the first choice of venture capitalists in the low-niche era. They prefer to buy U.S. stocks or digital currencies. In the increasingly unstable world, people's demand for risk aversion has exceeded the demand for venture capital. This phenomenon is also reflected in the surge in gold in the past two years, which also affects our analysis of the future trend of Bitcoin.
The U.S. stock market fell 8.47% and triggered circuit breakers several times during the epidemic, which is also in line with economic logic. In the second half of the interest rate cut cycle, the U.S. stock market started to surge again until the Federal Reserve started the interest rate hike cycle in 2022.
A more intuitive data here is the changes in the U.S. stock market from 3 months to 6 months or even 1 year after the first interest rate cut by the Federal Reserve.
We can see that except for 1973, 1981, 2000 and 2008, the U.S. stock market has experienced different degrees of surges one year after the interest rate cuts. The four times of decline were the oil crisis in 1973, the Internet bubble in 2000, the subprime mortgage crisis in 2008, and the not-too-serious Reaganomics fiscal deficit crisis in 1981. The first three times can be said to be bail-out-style interest rate cuts. In short, they were a last-ditch effort to remedy the situation.
The last interest rate cut cycle in 2019 was also a relief-style cut, but there was no sharp drop in prices, but rather a sharp rise.
Historically, the other type of interest rate cut is a defensive interest rate cut, which always leads to price increases. Obviously, we have not yet experienced a huge economic crisis this time, but there are only signs of an economic recession. As mentioned at the beginning, the large scale of the interest rate cut this time is defensive, so we can generally expect that the U.S. stock market will also rise this time.
On the whole, gold will generally rise immediately during the rate cut cycle, but because its volume is already large enough, the room for appreciation is limited. Generally, the increase will be more limited in the second half and after the rate cut. The bail-out-style rate cut is usually the cause of the rate cut, but it will rise later. In the defensive rate cut, it can generally bring about a rise in the U.S. stock market in the short term and a sustained long bull market in the U.S. stock market in the long term.
Let’s get back to the cryptocurrency world.
Let's talk about Bitcoin first. It has just passed the ETF. If we don't consider the suppression of cryptocurrencies by Harris in office, the trend should be a two-way superposition. First, the growth space of small market capitalization is no less than the safe-haven property of gold. Secondly, the high linkage with the risk market US stocks are all factors that drive the bull market. Bitcoin is likely to go bullish. Finally, due to the unrest in the world, people's risk aversion needs have increased. The consensus of Bitcoin cannot be compared with gold. It is also difficult to achieve the goal of near-zero interest rates in 2020 by cutting interest rates in the next year. Therefore, it is difficult to replicate the frenzy of the risk market in the last bull market. Bitcoin should go out of a long bull market instead of a violent bull market.
As for other altcoins in the blockchain, whether it is the cooling of the world's speculative nature or Bitcoin intercepting new leeks in ETFs, coupled with the lack of revolutionary nature of the altcoin market itself, it is almost impossible to see the situation of small volume, few gambling tables and many gamblers in the last round of bull market. The linkage between altcoins and Bitcoin remains, but this time from the perspective of more than 2 years, Bitcoin's long bull attribute compared to gold's low market value may not be less than the altcoins in the bull market. This time, Bitcoin is even more king.
