At the intersection of the global economy and financial markets, the direction of the Federal Reserve's rate-cutting policy remains a focus of market attention. A rate cut in September seems highly probable, and the market is full of expectations regarding its performance thereafter, especially concerning the potential impact on cryptocurrencies.
However, whether interest rate cuts necessarily lead to asset price increases is not a simple proposition. Historical experience shows that the relationship between rate cuts and market performance is complex and diverse, requiring in-depth analysis in conjunction with the macro environment and policy context.
Diversity of interest rate cuts and historical context
Over the past three decades, the Federal Reserve has experienced five major rate-cutting cycles, each driven by different economic motivations and market responses. Rate cuts are not a single 'bull market button,' but rather preventive or remedial measures taken based on economic demand.
From 1990 to 1992, the Gulf War and savings and loan crisis led to an economic recession, with the Federal Reserve cutting rates from 8% to 3%. Through easing policies, credit tightening was alleviated, with CPI growth decreasing from 4.48% to 2.75%, and GDP rebounding from -0.11% to 3.52%. The stock market reacted positively, with the Dow Jones rising 17.5%, S&P 500 up 21.1%, and Nasdaq soaring 47.4%, showcasing a strong recovery after the crisis.
From 1995 to 1998, the Federal Reserve gently cut rates from 5.5% to 4.75% to prevent recession and respond to the Asian financial crisis. The economy continued to expand, with GDP rising from 2.68% to 4.45%. The stock market celebrated, with the Dow Jones up 100.2%, S&P 500 rising 124.7%, and Nasdaq increasing 134.6%, laying the foundation for the later internet bubble.
From 2001 to 2003, the bursting of the internet bubble and the 9/11 attacks triggered a recession, with the Federal Reserve cutting rates from 6.5% to 1%, a cumulative drop of 500 basis points. Although a more severe crisis was avoided, GDP only rebounded from 1.7% to 3.85%, and the stock market remained sluggish, with the Dow Jones down 1.8%, S&P 500 down 13.4%, and Nasdaq down 12.6%, indicating that rate cuts struggled to immediately reverse structural shocks.
During the 2007-2009 financial crisis, the Federal Reserve cut rates from 5.25% to 0-0.25%, a total drop of 450 basis points, in response to the bursting of the housing bubble and the collapse of Lehman Brothers. GDP fell from 1.9% to -2.5%, and the stock market plummeted, with the Dow Jones down 53.8%, S&P 500 down 56.8%, and Nasdaq down 55.6%, showing that rate cuts failed to prevent the recession.
From 2019 to 2021, preemptive easing transitioned to pandemic response, with rates falling from 2.25% to 0.25%, alongside quantitative easing, GDP rebounding from -3.4% to 5.7%, and the stock market, driven by liquidity, with S&P 500 up 98.3%, Nasdaq up 166.7%, and Dow Jones up 53.6%, demonstrating a 'V-shaped recovery.'
Historical bull markets in the crypto market driven by liquidity
In 2017, the global economic recovery and the low interest rate environment provided fertile ground for the ICO frenzy, with Bitcoin rising from $1,000 to $20,000, ETH rising from a few dollars to $1,400, and altcoins experiencing widespread increases driven by narratives, but plummeting 80%-90% in 2018 after the bubble burst.
In 2021, the zero interest rates and quantitative easing triggered by the pandemic propelled the boom of DeFi, NFTs, and new public chains, with ETH rising from $1,000 to $4,800, SOL from $2 to $250, and market capitalization exceeding $3 trillion, but later declining by 70%-90% during the interest rate hike cycle.
Current environment: Preemptive interest rate cuts and structural opportunities
Currently, a weak labor market, tariffs, and geopolitical uncertainty have prompted the Federal Reserve to consider a rate cut in September, with FedWatch showing an 83.6% probability of a 25 basis point cut. Over the past year, following rate cuts, the S&P, Nasdaq, and Bitcoin have all reached historical highs, with Coinbase expecting that easing will lead to an altcoin season. However, history shows that the effects of rate cuts vary by context; preemptive rate cuts tend to stimulate growth, while emergency rate cuts often accompany recessions.
The current environment of the crypto market is unique. Favorable policies are emerging, stablecoins are being incorporated into compliance frameworks, digital asset treasury (e.g., MicroStrategy) and ETFs attract institutions, RWA tokenization narratives are accelerating, and funds are shifting from Bitcoin (market dominance dropping from 65% to 59%) to ETH and altcoins, with altcoin market cap growing 50% from early July to $1.4 trillion. Although the altcoin season index is only 40, far below the 75 threshold, funds have concentrated on ETH (with ETF size exceeding $22 billion) and RWA narratives, indicating structural opportunities.
Market and risk analysis
The $7.2 trillion money market fund in the U.S. serves as a potential powder keg; after rate cuts, the attractiveness of returns declines, potentially releasing funds into high-risk assets like crypto. However, market valuations are high, and the risk of excessive financialization from fiscal strategies and institutional sell-offs may trigger a crash. Global macro uncertainties (e.g., tariffs) further increase volatility, requiring investors to be cautious of structural bull markets rather than widespread rallies.
A rate cut in September may bring a bull market, but not an immediate rise; rather, it presents structural opportunities. History shows that preemptive rate cuts benefit risk assets, and the current environment supports this logic. The crypto market should focus on ETH, RWA, and leading projects, with rational investment being key to navigating volatility. Rate cuts are just the starting point; long-term growth relies on technological advancements and policy support.
