Following the Swiss National Bank’s interest rate cut yesterday, the Bank of Canada also began to cut interest rates. Today, the European Central Bank will also start to cut interest rates. Unknowingly, central banks around the world have begun to cut interest rates! So what is the relationship between the world’s major central banks starting to cut interest rates and the cryptocurrency circle? What is the connection? What impact will it have on Bitcoin?
I think this is what everyone is most interested in, so I will analyze it in detail for you!
The first thing we need to make clear about the ECB's interest rate cut is what are the prerequisites for their interest rate cut? If the ECB or the Fed is forced to cut interest rates because of an economic crisis or problems in the financial system, then this is extremely unfavorable for the financial market. If it is a preventive interest rate cut to cope with economic fatigue, then this is undoubtedly good for the financial market! Judging from the current major European stock markets, it is obvious that the stock market is encouraged by the ECB's interest rate cut and is advancing rapidly! Because of the interest rate cut, a large amount of capital will flow into banks, resulting in an increase in bank reserves to alleviate the problem of insufficient bank reserves due to the previous interest rate hike stage. Once the bank's balance sheet is repaired, the bank will have more money, so it can provide more funds to the market. The high interest rate maintained before has led to high capital costs, and now the interest rate cut has reduced the cost of borrowing funds. Next, with the start of the interest rate cut cycle, the cost of borrowing funds will gradually decrease. It is precisely because of this expectation that everyone will take out the money deposited in the bank to invest in the market, because the bank interest rate will gradually become lower, it is better to invest in other assets to obtain higher returns. Therefore, under normal circumstances, as long as the interest rate cut mode is started under the premise of a relatively healthy economy, it will be good for risky assets. In this way, after the interest rate cut, the bank will have more money, and they will also use the money to invest in relatively high-quality assets to obtain better returns. This is a huge benefit for Bitcoin and will further boost the price of Bitcoin assets!
In addition, if the European Central Bank’s interest rate cut is a hawkish one, then the U.S. dollar will start a depreciation cycle, which will be more beneficial to the price of Bitcoin, because Bitcoin is the counterpart of the U.S. dollar!
Common sense is that the euro will depreciate and the dollar will appreciate when the ECB cuts interest rates, but the market is often reflexive. If the ECB cuts interest rates in a hawkish manner, it will accelerate the depreciation of the dollar. The views are as follows:
① Even if the interest rate gap between Europe and the United States is not much different, European funds will not flow to the United States because of a small interest rate gap. More funds will first flow into European banks to alleviate the problem of insufficient bank reserves, while also laying a foundation for their own national economies. Other funds may consider flowing into other equity assets in pursuit of higher returns!
② The current inflation in the United States has been basically controlled. Among the components of inflation, commodity inflation has entered deflation, and currently it is mainly the service industry inflation that remains high. Therefore, the United States will mainly control service industry inflation by slowing down economic data. In addition, commodity inflation has entered deflation, so there is no need to maintain a strong dollar. Next, there will be a more rhythmic depreciation of the dollar. First, it can alleviate the debt problem, and second, it can promote the US trade deficit and alleviate the trade deficit problem! A strong dollar is not conducive to US exports. Only a depreciation of the dollar can benefit US exports!
Therefore, based on the above, the ECB's preventive rate cuts, the start of the dollar depreciation cycle, and if the Fed also starts the same preventive rate cut mode as the ECB later, as long as these three conditions are met, the liquidity of the entire capital market will usher in a complete change. When the entire capital market is full of funds again, this will help Bitcoin enter an epic bull market! As Trump said not long ago, the Bitcoin revolution must happen in the United States, and the United States must lead the innovation and development of Bitcoin! Use national power to ensure that this event happens!
