How long can the liquidity and positive sentiment in the market last? What other effects do interest rate cut expectations have?
Overly focusing on interest rate cuts is somewhat misguided. People tend to apply the experiences from 2008-2019 — when quantitative easing was introduced, the Federal Reserve printed money weekly, and buying assets guaranteed profits, which has become a reflex in the financial markets. However, the rules of the game have changed. Once the market realizes that quantitative easing means inflation, which can impact election results, the policy toolbox must be updated. The actions taken by Yellen at the end of 2022 are a typical example — although not nominal QE, it created liquidity in some form, driving stocks, cryptocurrencies, and gold to surge in the following 18-24 months, until Trump's inauguration.
Now, people are still waiting for Powell to cut interest rates or restart QE, which is completely missing the point.
The U.S. Treasury is currently implementing a bond repurchase plan, which, while not as straightforward as QE, essentially provides leverage for Treasury bond buyers. As government deficits expand, trillions of dollars in new debt will flood the market, indicating that liquidity is still being injected, just under a different guise. If one waits for the traditional QE signal to enter the market, they may find that prices have already risen.
The data that truly needs attention is volatility, especially the bond market volatility index (MOVE). When this index breaks 140, policymakers must intervene: for example, on April 8, when it touched 172 during trading, JPMorgan CEO Dimon immediately criticized Trump's tariff policy on television, leading Trump to change course; after MOVE surpassed 140 in September 2022, Yellen quickly adjusted the bond issuance structure, and the market rebounded in response. History repeatedly proves that as the leverage in the financial system rises, the intervention threshold for policymakers is lowering.
Trump, as a "volatility maker," is precisely a positive factor for Bitcoin. He often employs the strategy of "maximum pressure - testing reactions - quick pivot," and this unpredictability is exactly the nourishment that the crypto market loves. We do not need to predict policy direction; as long as volatility rises, we can make money — because a highly leveraged financial system cannot withstand severe fluctuations.
