The impact of the Federal Reserve's interest rate decisions on the cryptocurrency market primarily hinges on how policy signals influence liquidity and market sentiment. Below is a summary from various scenarios:
If a signal of 'no rate cuts this year' is released:
- 🎋 Capital withdrawal effect: The yield on dollar assets (such as U.S. Treasuries) remains high, reducing the 'cost-performance ratio' of cryptocurrencies as high-risk assets. Institutions and retail investors may sell BTC, ETH, etc., in favor of dollar assets, leading to downward pressure on cryptocurrency prices; for example, Bitcoin may briefly fall below key support levels.
- 🎋 Market sentiment cools: Traders will anticipate an extended period of tightening liquidity, leading to capital withdrawal and increased risk of liquidation in the futures market, with altcoins potentially following suit, resulting in reduced market trading volume.
If it hints at 'initiating rate cuts before the end of the year':
- 🎋 Liquidity recovery driven: Expectations of rate cuts will lower the dollar index, reinforcing the attributes of cryptocurrencies as 'inflation hedges' and 'non-sovereign assets,' with funds flowing from fiat currencies into the crypto space. Bitcoin may be the first to break previous highs, leading mainstream coins like Ethereum to rise in tandem.
- 🎋 Narrative logic fermentation: The market will preemptively hype 'rate cut and liquidity injection' expectations, sectors like DeFi (Decentralized Finance) and Layer 2 are likely to be speculated upon due to anticipated 'increased capital efficiency,' with some altcoins potentially experiencing short-term doubling in value.
If policy statements are 'vaguely neutral':
- 🎋 Short-term volatility as the main trend: When the market lacks clear guidance, capital may wait for more data (such as subsequent non-farm payrolls and inflation reports), and cryptocurrency prices may fluctuate within a range; for example, Bitcoin may oscillate between $40,000 and $45,000, with trading volume remaining moderate.
- 🎋 Increased sector divergence: Capital may flow into areas with 'strong narrative certainty,' such as Ethereum's Cancun upgrade and new blockchain ecosystems, while altcoins lacking fundamental support may remain sluggish.
Key impact logic summary:
The essence of the Federal Reserve's policy impact on the crypto market lies in the interplay of 'funding costs' and 'risk appetite':
- Hawkish = high funding costs + decreased risk appetite = bearish for prices;
- Dovish = low funding costs + increased risk appetite = bullish for prices.
The high volatility of cryptocurrencies may lead the market to preemptively price in policy expectations, with actual trends possibly experiencing short-term fluctuations of 'buying the expectation, selling the fact' around the time of the announcement.
