After so many years in the cryptocurrency space, every time the Federal Reserve Chairman speaks, it can turn the crypto world upside down.
First, let’s talk about the expectation of interest rate cuts. If the dollar becomes cheaper, money in the market will flow out. The crypto space, being high-risk but with the potential for great wealth, is certainly a target for funds. Just like the wave of liquidity in 2020, Bitcoin soared. Now everyone is hoping for history to repeat itself. But what we fear most is a missed expectation. For instance, if the market is betting on an interest rate cut, but the chairman's speech is ambiguous or even suggests a wait-and-see approach, the price of cryptocurrencies could plummet instantly. After all, there are too many leveraged players in the crypto space, and even the slightest disturbance can lead to panic selling.
Then there’s the matter of the successor, which can have a longer-lasting impact than a single speech. It's like having a new housekeeper; whether the new housekeeper is a generous money printer (dove) or a tight-fisted hawk directly determines the fate of the crypto space for the next few years. If a dove comes to power, the crypto market is likely to catch its breath, and funds will be bolder in entering the market. But if a hawk comes in, it could be like cutting off the water supply to the crypto space, especially for those altcoins that rely on speculation; they might be directly washed up on the beach.
The crypto market is different from the stock market; there are no limits on price fluctuations, and leverage can be fully utilized, so the impact of the Federal Reserve's speech is magnified tenfold. Last time the chairman said there would be no interest rate cuts for now, Bitcoin dropped 15% in half a day, and a bunch of leveraged positions were liquidated, with everyone in the group crying for help. Now another speech is coming, and people are both hopeful and fearful: hoping for signals of interest rate cuts to send crypto prices soaring, but fearing that expectations might be dashed.
Moreover, the people in the crypto space are very savvy; they will start speculating ahead of the speech. For example, in the past few days, crypto prices have been rising secretly. Once the speech happens, regardless of the outcome, there may be people cashing out, resulting in good news turning into bad news.
In short, the Federal Reserve is the invisible dealer in the crypto space; a single word or a choice of a person can determine whether the numbers in our accounts go up or down. Every time we encounter such events, it feels like gambling with our lives: betting on getting it right will lead to luxury, while getting it wrong means laboring on a construction site. But there’s nothing we can do; after all, the liquidity of the crypto space is tightly bound to the dollar. We can only keep our eyes wide open, focus on the speech content, and take another gamble.
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