With the Federal Reserve officially cutting interest rates by 50 basis points this morning, the last shoe on the macro level of the crypto market this year has finally landed.

Looking back now, among the three clear benefits that the market is most looking forward to in 2024 - spot Bitcoin ETF, Bitcoin halving, and the Federal Reserve's interest rate cut, the ETF pushed Bitcoin to exceed US$70,000 and hit a record high; the halving did not. Expectations generally bring significant market volatility.

While the relevance of macro conditions to Bitcoin is often debated, macro cycles, especially USD liquidity (as a function of monetary policy/interest rates, risk appetite, etc.) remain the primary driver of medium- to long-term asset prices. Today, market consensus seems to be mostly bullish on the start of the Fed’s rate cut cycle, and it is generally believed that this is a tradable event, but is this really the case?

The interest rate cut cycle has begun, and the market is bullish overnight?

Since the beginning of 2022, the US federal funds rate has entered an upward cycle. Until the third quarter of 2023, the Federal Reserve intensively raised interest rates to combat US inflation. Between January 2022 and August 2023, the effective interest rate increased from 0.08% to a target rate between 5.25% and 5.5%.

Now, with the Federal Reserve announcing a 50 basis point rate cut on September 18, lowering the target range of the federal funds rate to between 4.75% and 5.00%, it means that this round of tightening cycle has officially ended, and the published dot plot also shows that it is expected that the interest rate will continue to be cut by 50 basis points this year.

Dot Chart Analysis | Jinshi Data

Although the first interest rate cut was delayed by 4 months compared to market expectations, driven by this, the market's positive sentiment in the cryptocurrency industry has significantly strengthened, and people have begun to tend to invest funds in Bitcoin and other crypto assets.

The reason is very simple. Previously, the US money and bond markets, as the largest pools in the financial market, were full of liquidity. Now that interest rates have entered a downward cycle, the attractiveness of the money and bond markets will decrease, and people will begin to prefer investing their funds in assets that offer higher risks and returns.

Therefore, after the news was announced this morning, market sentiment was ignited in an instant. Bitcoin broke through the integer levels of $61,000 and $32,000 in succession, reaching a high of $62,589. At the same time, over the past 12 hours, the entire network had liquidated more than $114 million, of which long orders exceeded $97 million. The entire crypto market directly staged a bloody massacre of short sellers, especially Bitcoin short sellers.

Coinglass Data

However, it is worth noting that interest rate cuts are usually beneficial to risky assets, but for price trends, what is important is often not the factors that have been priced in, but the degree of deviation from market expectations. Jean-David Pequignot, head of markets at OSL, said:

“Bitcoin and the broader cryptocurrency space rallied after the Fed announced a 50 basis point rate cut, but the committee’s message remained cautious about further rate cuts, with Governor Bowman advocating for a smaller rate cut while Chairman Powell expressed concerns about overly aggressive policy easing. The U.S. election is in full swing, and the market will be closely watching economic indicators in the coming months to determine the direction of the federal funds rate.”

In addition, some hidden fermentation events in the market in the past few months may also become overlooked positive/negative factors. Let us look forward to the main storyline that may take on the main responsibility in the second half of the year.

US spot ETFs continue to see inflows

According to SoSoValue data, Bitcoin spot ETFs have seen a new wave of capital inflows since July. Although there has been a significant weekly decline since the beginning of this month, the overall situation has reversed significantly compared to April-May.

As of the time of writing, the total net asset value of the Bitcoin spot ETF is US$54.85 billion, the ETF net asset ratio (market value as a percentage of the total market value of Bitcoin) is 4.61%, and the historical cumulative net inflow has reached US$17.44 billion.

Hong Kong digital asset ETF gradually gains volume

The market always likes to overestimate the short-term effects of new things and underestimate their long-term influence. In addition to the US ETF, the Hong Kong virtual asset spot ETF, which has been launched for nearly half a year, has a recent signal that is also worth paying attention to:

According to data from the Hong Kong Stock Exchange, the total trading volume of Hong Kong's three Bitcoin spot ETFs last week was approximately HK$84 million, a significant increase of more than 191% from HK$28.86 million in the previous week.

Among them, the weekly trading volume of two Bitcoin ETFs under China Asset Management and Harvest Asset Management, which are managed by OSL, exceeded HK$81 million, accounting for 96.1%, a significant increase of 244% from HK$23.55 million last week; the weekly trading volume of another spot Bitcoin ETF was approximately HK$3.2688 million, accounting for approximately 3.9%, a decrease of more than 38% from HK$5.31 million last week.

The crypto regulatory wheel turns

The wind starts from the tip of the green reed. Against the backdrop of the 2024 election year, the macro environment has clearly improved recently, both at the regulatory level and at the funding level, brewing a new round of catalysts.

First, on May 22, the 21st Century Financial Innovation and Technology Act (FIT21 Act) was passed by the House of Representatives with an overwhelming majority of 279 votes to 136. Then the U.S. Securities and Exchange Commission (SEC) quickly approved the Ethereum spot ETF, which meant that the stance of U.S. regulators began to shift from tough to soft.

US SEC official website

In particular, the American political circles have also begun to try it frequently: 4 years ago, if someone told you that in this round of US presidential election, candidates from both parties would actively promote their recognition and support for cryptocurrencies, even to the point of "comparison", would you believe it?

You would think that person is crazy.

But the reality is so dramatic. For the crypto industry, the 2024 U.S. presidential election has become a political show that is completely different from the 2020 and 2016 elections. Whether it is the agenda setting throughout the election cycle or the public statements of the presidential candidates on both sides, cryptocurrencies have unprecedentedly begun to be involved, and the candidates on both sides are even "comparing" their open attitudes.

Overall, the election year is definitely a key factor. For the United States, the group that directly or indirectly holds cryptocurrencies has become a force that cannot be ignored, especially when the poll data is tight. The "critical few" are very popular, as can be seen from the passage of the FIT21 bill at this time point.

summary

History does not simply repeat itself, but it always rhymes.

In general, in this market environment where the market is both cold and warm, there are still quite a lot of positive factors slowly fermenting. As long as you observe carefully, people will still have confidence in the future market. With the start of a new round of interest rate cuts and the dust settling on the 2024 US election, Web3 and the encryption industry may really enter a new cycle.