The Federal Reserve's interest rate leverage is pulling global capital flows. Every hesitation at this moment is building up momentum for change in the crypto world.
Trump's anger and the inverted yield curve of U.S. Treasury bonds together outline the difficult situation the Federal Reserve currently faces. The government pays billions in interest daily for debt, and this pain is real, but the shadow of inflation is equally stubborn—supply chain restructuring, repeated tariff wars, and a persistently hot job market all make cutting interest rates a precarious endeavor. The rate cut in July has become a mirage, and whether it can happen in September remains uncertain. Powell withstands political fire, using his professional reputation to resist the temptation of rate cuts; this battle of wills is far from over.
This high-pressure policy deadlock poses a complex negative suppression on the cryptocurrency market in the short term, but it also quietly lays the groundwork for future explosions.
High interest rates continue to siphon off funds: A 4.4% risk-free return acts like a magnet, continuously drawing funds away from high-risk assets like Bitcoin. Capital always seeks profit, and when holding dollars can yield easy gains, the impulse for risk-taking naturally cools. This is why the crypto market often seems to stumble during the recent stock market frenzy—high-yield dollars act as heavy shackles.
The liquidity thirst intensifies: If the Federal Reserve does not cut interest rates, the valve for global dollar supply will be difficult to truly open. The crypto market, which is extremely sensitive to liquidity, lacks fresh 'fuel' injection, making it hard for the overall water level to make a qualitative leap. The market can only fall into a game of existing stocks, where hotspots rotate quickly but are hard to sustain, much like the repeated tug-of-war in the second half of 2023.
Recession expectations and the paradox of safe-haven assets: An inverted yield curve of U.S. Treasury bonds (2-year higher than 10-year) is a classic recession warning. Theoretically, Bitcoin could have the safe-haven property of 'digital gold.' However, in reality, if a true economic recession occurs, a liquidity crisis (Cash is King) often first strangles all risk assets. Looking back at 'Black Thursday' in March 2020, Bitcoin plummeted 60% in panic, and its so-called safe-haven property crumbled in the face of extreme liquidity exhaustion.
However, the deepest darkness often comes before dawn.
A rate cut may be delayed but is inevitable: Powell's steadfastness will eventually reach its limit. High interest is consuming fiscal space, and economic resilience cannot indefinitely withstand the heavy pressure of high rates. Once inflation shows a definite decline or the job market visibly loosens, the floodgates for rate cuts will surely open. The CME FedWatch tool shows that the market bets on a rate cut in September with a probability exceeding 65%, and the competition is heating up.
The calm in the eye of the storm is most tormenting. The current crypto market is like a trapped beast locked by high-interest chains, and Trump's rants are just background noise. The real key to victory lies in when Powell is forced to lower interest rates on the balance between inflation and recession.
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