Why does a big bull market always have a cottage season?

Why is this?

Let's make it clear that the cottage season in 2021 was due to interest rate cuts.

Then the cottage season in 2017 was due to interest rate hikes?

It seems that this logic is a bit far-fetched.

In fact, there was no interest rate cut in 2021. The interest rate cut happened from 2019 to 2020. The reason why the interest rate cut process was so fast this time was due to two reasons.

On the one hand, the interest rate was already very low, only 2.5%, so it took 10 months to get the interest rate back to 0.25%. If the interest rate exceeds 5%, it will take longer.

On the other hand, it is the impact of the new crown epidemic. In fact, this interest rate cut is more like a defensive interest rate cut because of the subsequent large-scale unemployment and economic recession.

During the interest rate cut, the price of Bitcoin was at a low level, with an average price of less than $8,000. In fact, not only Bitcoin, but also the S&P 500 index fell during the interest rate cut.

The full recovery of the market began in September 2020, just two months before the US election. Historically, the market before and after the election usually develops in a positive direction, mainly because both parties will release more liquidity for the election.

More importantly, 2020 is a very special time because it is the year of "post-disaster reconstruction". In response to the COVID-19 pandemic, the Federal Reserve has taken unprecedented measures to release cash directly to every citizen. Similar policies have been adopted not only in the United States but also around the world.

Coincidentally, the 2020 Bitcoin halving event occurred on May 11, which is also the more famous halving start time in history. The 5 months after the halving is exactly the beginning of the alt season. Therefore, the main reason for the alt season is not the interest rate cut itself, but the subsequent "post-disaster reconstruction" period, when the Federal Reserve usually releases a lot of liquidity to stimulate the market.

As for 2017, the process of raising interest rates at that time did trigger a climax in the market's rise. Not only Bitcoin, but also the S&P 500 index rose. But if you look closely, interest rate hikes often fall first and then rise. The climax of the rise in 2017 was actually due to the suspension of interest rate hikes, not the interest rate hikes themselves.

In short, the rise and fall of the market is mainly caused by liquidity, but liquidity is not the only reason.The market is complex and full of games, but the big trends are often predictable. So, there is nothing wrong, everything is the interpretation of historical laws, liquidity is the reason for the bull market, and there is a cottage season when there is liquidity. It's that simple.

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