Why is lowering interest rates the most direct factor affecting liquidity in the cryptocurrency market and US stock market?
Lowering interest rates reduces financing costs → releases liquidity → stimulates investment and consumption → drives up prices of risk assets (stocks/cryptocurrency)
Raising interest rates increases the cost of capital → contracts liquidity → suppresses overheating inflation → suppresses asset valuations.
The core path of monetary policy: policy interest rates → market liquidity → corporate/personal credit → asset pricing reassessment → adjustment of economic expectations, creating a chain reaction of investment impacts on the stock market, cryptocurrency market, bond market, and exchange rates.
