Gate.io Research Institute: A wave of interest rate cuts is coming, will the market bottom out and reverse?

Federal Reserve Chairman Powell recently expressed the view that inflation data is conducive to interest rate cuts three times. The market generally expects that the Federal Reserve may implement two interest rate cuts this year. This series of interest rate cuts is expected to significantly increase the liquidity of funds in the market and have a significant positive impact on the cryptocurrency market, indicating that more funds may flow into this field.

summary

• After the release of the June CPI data, the market generally expected that the Federal Reserve might cut interest rates in September, and Federal Reserve officials also publicly stated that the time for a rate cut is approaching.

• In the short term, the interest rate cuts by global central banks, represented by the Federal Reserve, have undoubtedly injected a shot in the arm for the cryptocurrency market. As market liquidity increases significantly, expectations of interest rate cuts will directly trigger market optimism.

• The prelude to interest rate cuts initiated by central banks around the world has brought new opportunities and challenges to the crypto market, requiring investors to conduct comprehensive analysis and participate rationally.

introduction

Recently, when inflation did not reach the expected control target, the Bank of Canada and the European Central Bank cut interest rates ahead of the traditional path to cope with the global economic slowdown and economic pressures in various countries. Although the Federal Reserve has not officially cut interest rates, given the significant slowdown in inflation data in the past three months, Federal Reserve officials have hinted that the time is ripe for a rate cut. The market expects the Federal Reserve to start cutting interest rates in September, and the crypto market has begun to rebound due to expectations of loose liquidity. This article will discuss this in detail.

Europe cuts interest rates first, the Fed is about to follow

Recently, the Bank of Canada and the European Central Bank, which were followers of this round of interest rate hikes, took the lead in choosing to cut interest rates when inflation was higher than the target, in response to the slowdown in global economic growth and the multiple economic pressures faced by various countries.

Although the European Central Bank has taken the first step in cutting interest rates, the Federal Reserve has not yet cut interest rates. However, as the June CPI data turned negative for the first time in four years on a month-on-month basis and the core year-on-year growth rate hit a three-year low, Federal Reserve officials have publicly stated that the time for a rate cut is approaching, and the market generally expects that the Federal Reserve may begin to take interest rate cut actions in September.

In fact, Fed Chairman Powell has recently made several speeches on inflation and economic conditions, revealing the Feds subtle attitude towards policy adjustments. In his statement this week, he further stated that the slowing trend of inflation and economic activity is basically consistent with the Feds expectations, especially the second quarter inflation data has strengthened the markets confidence in the decline in inflation to a certain extent, especially the price increase rate is steadily falling back to the 2% target set by the Fed, which indicates that the window for interest rate cuts may be about to open.

He also mentioned that the labor market is currently in a more balanced state, and if there is unexpected weakness in the future, it will also become one of the considerations for adjusting interest rates.

The market reacted strongly to this dovish tone. The FedWatch tool of CME showed that the market generally expected the Federal Reserve to announce a rate cut at its September policy meeting, and the expectation was almost 100% certain.

It is worth mentioning that this week the market will pay close attention to key economic data such as US retail sales, industrial output and weekly unemployment claims in June. These data are expected to provide more clues for assessing the strength of the US economy and thus affect market expectations on the timing of the Feds interest rate cut. Gate Research will also continue to follow up and analyze for everyone.

Overall, with the easing of inflationary pressure and the adjustment of economic growth expectations, the Fed鈥檚 interest rate cut has become a general consensus in the market, which is undoubtedly a long-awaited positive signal for the cryptocurrency market.

Will interest rate cuts directly benefit the crypto market? Yes or No

Although the market is currently flooded with interpretations of the positive impact of interest rate cuts on the crypto market, we have also seen some cautious analysis.

Generally speaking, interest rate cuts are seen as a catalyst for increased market liquidity, as lower borrowing costs stimulate investor enthusiasm. This increased liquidity can often penetrate into emerging markets such as cryptocurrencies, pushing up their prices.

In addition, the increase in economic uncertainty in an environment of interest rate cuts has prompted investors to seek safe-haven assets. Cryptocurrencies such as Bitcoin have gradually become new safe-haven options due to their unique characteristics of decentralization, fixed supply, and easy storage, which will naturally further enhance their market appeal and prices.

Although the market is full of expectations for interest rate cuts, many institutions generally believe that it is necessary to remain cautious in the complex and changing market environment. For example, Morgan Stanley strategists predict that the US stock market may fall back by 10%, while Goldman Sachs expects a large amount of funds to flow out of the US stock market in August, waiting for the election results to become clear.

This cautious attitude is mainly based on concerns about the possible recession of the US economy. During the financial crises in 2001 and 2008, although the Federal Reserve implemented interest rate cuts in the early stages, the market briefly reached a high point and then encountered a sharp downward trend. Even the Federal Reserves rapid and substantial reduction in interest rates failed to effectively curb the further spread of the crisis. The roots of these two crises can be traced back to the successive bursting of the Internet bubble and the real estate bubble, which had a profound recessionary impact on the economy.

As to whether the current interest rate cut policy will repeat the same mistakes and trigger an outbreak such as the artificial intelligence bubble or the US debt crisis, which will in turn drag down the crypto market, it is still worth being vigilant.

Under the disturbance of multiple factors, the crypto market may rise steadily

In fact, in the short term, the interest rate cuts by global central banks, represented by the Federal Reserve, have undoubtedly injected a shot in the arm for the cryptocurrency market. There is no doubt that as market liquidity increases significantly, the expectation of interest rate cuts will directly trigger market optimism, which may prompt the cryptocurrency market to usher in a wave of rising prices in the short term, bringing investors opportunities for quick profits.

However, in the long run, the trend of the cryptocurrency market will be affected by more complex and changeable factors, and price fluctuations are rarely driven by a single factor, requiring comprehensive analysis.

First of all, the strength of economic recovery is one of the important factors that determine market trends. If the interest rate cut policy can effectively boost the economy and improve the overall economic environment, the cryptocurrency market is expected to benefit from it and enjoy the dividends brought by economic growth. On the contrary, if the economic recovery is not as expected and market confidence is frustrated, cryptocurrencies will naturally be difficult to remain unaffected. For example, during the 2020 COVID-19 pandemic, Bitcoin was affected by the stock market and commodities and also experienced a 312 crash.

Secondly, inflationary pressure is another factor that cannot be ignored. The central banks interest rate cut is intended to stimulate the economy, but it may also trigger the risk of rising inflation. Once inflation is high, the central bank may adjust its policy direction and consider raising interest rates to curb inflation, which will directly put pressure on the cryptocurrency market. Therefore, investors need to pay close attention to global inflation data and central bank policy trends in order to adjust their investment strategies in a timely manner.

Furthermore, the US election and changes in the global regulatory environment have far-reaching impacts on the cryptocurrency market. With the rapid development of the market, global regulators are paying more and more attention to it. While the spot ETFs of Bitcoin and Ethereum are being recognized by regulators, they also bring more regulatory attention pressure. Therefore, the future direction of regulatory policies will still be directly related to the stability and development prospects of the market.

Despite many uncertainties, the opportunities brought by interest rate cuts to the cryptocurrency market cannot be ignored. We believe that the monetary easing policies of central banks such as the Federal Reserve are expected to provide more liquidity support for crypto assets such as Bitcoin and promote the continued development of the market. At the same time, with the gradual improvement of the regulatory framework and the continuous maturity of the market, crypto assets are expected to play a greater financial value in the future and create more wealth opportunities for investors.

In short, the prelude to interest rate cuts by global central banks has undoubtedly brought new opportunities and challenges to the crypto market, which includes factors such as increased liquidity and increased risk aversion, as well as challenges from lessons learned from historical financial crises and other complex factors. We believe that although there is always a long-short game in market prices, under the background of a more constructive regulatory framework and the expansion of crypto reality adoption, the innovation and application of digital assets will serve more community users and release more innovative value.

*This article only represents the authors views and does not constitute any trading advice.

*The content of this article is original and the copyright belongs to Gate.io. If you need to reprint it, please indicate the author and source, otherwise legal liability will be pursued.

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