The Fed's interest rate cut is imminent, revealing opportunities and risks in the cryptocurrency market.
At 2 AM the day after tomorrow, the Fed will announce the interest rate cut results. The market expects a cut of 25 basis points, and the key lies in Powell's statement about "how many more cuts this year," which will determine the liquidity direction in the cryptocurrency market for the next 3 to 6 months.
Looking back at the Fed's interest rate cuts over the past 30 years, a rate cut is not a universal key for "profiting from buying cryptocurrencies"; the results vary based on "economic conditions + asset price positions":
2020: The pandemic caused economic stagnation, the Fed urgently cut rates by 150 basis points and launched unlimited quantitative easing, with Bitcoin soaring from $3,800 to $69,000, igniting a super bull market.
2007: The subprime mortgage crisis erupted, U.S. stocks were at a high, and the Fed cut rates by 525 basis points in a year with no effect, leading to economic collapse. Although Bitcoin had not yet been created at that time, risk assets suffered a total rout. 2001: The burst of the internet bubble combined with the 911 incident saw the Fed cut rates 11 times in a year by 550 basis points, yet this could not prevent a further 20% decline in tech stocks, leading to a recession.
1995: Economic growth slowed but there was no recession, inflation was stable, and Greenspan cut rates by 75 basis points in six months, resulting in a 3-year rally in U.S. stocks.
The current market is special, with "no recession + all assets at high levels," meaning the effects of rate cuts may be discounted. The S&P 500 has reached new highs, with valuations at the 85th percentile over the past 10 years; U.S. Treasury yields are falling, with funds betting on easing in advance. In the cryptocurrency market, Bitcoin's gains are weak, and if Powell does not mention "multiple cuts this year," it may pull back to $118,000; altcoins have gone through a “copycat season,” with new opportunities in new public chains, AI + blockchain narrative coins, and other varieties with new stories and concentrated chips.
This rate cut requires caution about two major risks: first, the risk of secondary inflation. If Powell warns against secondary inflation rearing its head, indicating a pause in rate cuts, liquidity will tighten, leading to corrections in Bitcoin, U.S. stocks, and U.S. Treasuries; second, the risk of stagflation, where the economy does not recover after rate cuts and inflation remains high, causing funds to flee risk assets, leading to a bloodbath in the cryptocurrency market.
This rate cut is a "catalyst," amplifying the market while exposing risks. Do not blindly go all in or stay empty; the key is to follow the signals, remain cautiously optimistic, seize the market, and know how to "take profits."
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