Source: Talking about Li
In a recent article, we mainly rethought the development of the market. In terms of current market sentiment, many people seem to be increasingly hopeful about the expectation of interest rate cuts (by the Federal Reserve).
The last time the cryptocurrency market benefited significantly from interest rate cuts was at the beginning of 2020. Before the outbreak of the COVID-19 pandemic, the federal funds rate (the rate adjusted by the Federal Reserve) was not high, only 1.5% — 1.75%. However, to respond to the impact of the pandemic, the Federal Reserve made two emergency interest rate cuts within a month: the first cut by 50 basis points (0.5%), and the second cut by 100 basis points (1%).
As a result, the federal funds rate was directly lowered to 0% — 0.25%, which means that borrowing (credit) became easier than ever before. With the reduction in borrowing costs, a large amount of liquidity flooded into the market (including the cryptocurrency market) and pushed up the prices of various risk assets, becoming one of the main driving factors of the bull market in 2021.
1. Trump's interest rate cut complex
An interesting report from BBC at that time (March 16, 2020) mentioned that as the Federal Reserve urgently cut interest rates to zero and 'used up all the ammunition at once', Trump, who had previously criticized Powell for being 'ineffective', rarely changed his tone to praise, calling it 'fantastic', 'very good news', 'made me very happy'. As shown in the picture below.
From the reports at that time, it seems that Trump has always had a 'complex' about 'interest rate cuts'.
Five years have passed in a flash. I remember that this year (2025), after Trump was re-elected as president, he publicly stated: he understands interest rates better than Federal Reserve Chairman Powell. As shown in the picture below.
However, based on a series of actions taken by Trump in the past two months, and the resulting huge volatility impact on the market (including the U.S. stock market, cryptocurrency market, etc.), it seems that the Federal Reserve has not 'listened to him' this time. This is also what many people in the market are speculating about; the reason Trump is doing so much now is to 'force' the Federal Reserve to cut interest rates.
2. The impact of interest rate cuts on the market
Let's return to the topic of the cryptocurrency market.
It is precisely because of the interest rate cuts in 2020 that extremely low borrowing costs and larger-scale liquidity have nurtured the process of a new bull market.
However, if we look back at the historical price trends, we can also find that the effect of interest rate cuts at that time did not have an immediate impact on the cryptocurrency market. The bull market did not erupt until 2021. This actually reflects the point we mentioned in previous articles: the cryptocurrency market mainly enjoys 'excessive liquidity', which means that the large-scale liquidity brought about by interest rate cuts will first flow into traditional markets such as the U.S. stock market before it enters the high-risk market of cryptocurrency.
However, this situation will gradually change, as more and more large institutions have begun to deeply participate in the cryptocurrency market in recent years. The cryptocurrency market has increasingly synchronized with the U.S. stock market, and once the market has large-scale liquidity, a portion of funds may choose to flow into the cryptocurrency market in advance.
As time entered 2022, the interest rate cuts (zero interest rate) also led to rising inflation in the U.S., with the CPI reaching a historical high in 40 years. Therefore, the Federal Reserve reopened a new round of interest rate hikes, raising rates six times in 2022 (in March, May, June, July, September, and December), and by July 2023, it had raised rates 11 times to 4.33% — 5.50%, the highest level in 20 years. As shown in the picture below.
From a time perspective, the period of 2022-2023 happened to be a new round of bear market for the cryptocurrency market.
As time continued into 2024, the Federal Reserve began to cut interest rates again (a new round of interest rate cuts started in September 2024) and injected new liquidity into the market. Coupled with the macro narrative of ETFs and some new internal narratives within the BTC ecosystem, the cryptocurrency market reopened a new round of bull market.
Moreover, we can also see from the continuous growth of stablecoins that some funds are just about to start flowing into the market on a large scale, as shown in the picture below. We have also experienced subsequent events, such as the large-scale prosperity of MemeCoin (price speculation), BTC breaking the $100,000 milestone and continuously setting historical highs...
So, what will the next script look like? I don't know, we need to pay attention to the Federal Reserve's interest rate meeting next week (March 19), as shown in the picture below.
However, based on some current prediction data, the expectation for interest rate cuts in June is still relatively high, as shown in the picture below.
Although the expectation for interest rate cuts this year is still relatively high, through the previous text, we can also see the differences between the interest rate cuts in 2020 and those in 2025: Aside from the differences in starting interest rates, the biggest difference is the speed of interest rate cuts. The previous round of interest rate cuts was relatively rapid and large in scale, while the current round of interest rate cuts seems to be a slow and gradual process, unless larger-scale black swan events occur, such as the stock market circuit breaker we mentioned in an article a few days ago (March 11).
As mentioned above, the cryptocurrency market mainly enjoys excessive liquidity. Even if this situation may change in the future, if the process of interest rate cuts is slow and gradual, then for the current stage of the cryptocurrency market, it may also be a gradual market, which will make trading more difficult and cautious for ordinary investors, unless extreme conditions occur, such as:
On the positive side, it meets the other two of the three core factors (narrative, macro, policy) mentioned in our previous article, namely, new transformations or innovations occurring within the cryptocurrency market (currently not visible), or significant new favorable policy stimuli emerging, referring mainly to the U.S. (of course, if a certain major Eastern country can relax, it would be a greater benefit, but currently, this seems impossible). On the negative side, events larger than the tariff war, black swan events, could directly crash the market.
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