Recently, the financial circle has been hotly discussing a topic: Will the Federal Reserve lower interest rates in September? This is not a trivial matter; once interest rates are cut, global financial markets will inevitably 'shake,' and our cryptocurrency market cannot be an exception.
From the current situation, the expectation of a rate cut is indeed not unfounded. US inflation data has been continuously easing, with July's CPI growing by 2.9% year-on-year, down 0.1 percentage points from June, marking four consecutive months of decline. Economic data is also not very strong, with July's manufacturing PMI dropping to 46.8%, also declining for four consecutive months. Additionally, Federal Reserve Chairman Powell hinted at the FOMC meeting press conference on July 31 that if future economic data meets expectations, there is a possibility of discussing a rate cut at the September meeting. Following these operations, market expectations for a Fed rate cut in September have been rising sharply. According to CME's 'FedWatch' data, as of August 21, the probability of a 25 basis point rate cut in September is 32.5%, and the probability of a 50 basis point cut is 67.5%.
If the Federal Reserve really lowers interest rates in September, what impact will it have on the cryptocurrency market? Theoretically, a rate cut is a major boon for cryptocurrencies. Lower interest rates mean reduced capital costs, stimulating economic activity, and investors will be more willing to pursue high-risk, high-return assets, making cryptocurrencies like Bitcoin more attractive. Additionally, rate cuts generally lead to a decline in the yields of traditional safe-haven assets, highlighting Bitcoin's 'digital gold' characteristic of being anti-inflation. Market liquidity is also likely to become more abundant due to rate cuts, potentially leading to more funds flowing into the crypto market.
Looking back at history, during the Federal Reserve's rate cuts in 2019, the price of Bitcoin had already doubled from about $4,000 at the beginning of the year to $8,000 before the rate cut, and after the rate cut announcement, it peaked at $10,000 in July. Although there was a subsequent pullback, it is evident that rate cuts stimulated Bitcoin's price. In 2020, the Federal Reserve significantly cut rates in response to the pandemic, and Bitcoin's price directly broke through the $30,000 mark by the end of the year.
Taking my own experience in the cryptocurrency market over the past three years as an example, the changes in the market environment have a huge impact on investment strategies. Previously, I relied on the three strategies of 'first selecting coins and diversifying positions, cutting losses when the market is poor, and increasing positions when there are floating profits.' I did not face liquidation in the bear market and successfully took off in the bull market. If the Federal Reserve really lowers interest rates in September, the market is likely to welcome a new trend. At that time, many people may face soul-searching questions like 'BTC gains 30%, ETH loses 30%, which position to adjust?' But no matter how the market changes, we must stick to our discipline and overcome the weaknesses of human nature. As mentioned before, operating against human nature often yields better returns. Put the chips in the hands of the strong and don’t be led by floating losses. Perhaps this round of Fed rate cuts will present a new opportunity for the crypto market; it just depends on who can seize it.