Maybe it was stimulated by the Fed's interest rate cut. I found that there were more messages in the background in the past two days, and then some friends left messages asking me: Should I buy Bitcoin now? How much will Bitcoin rise next year?
This seemingly thoughtless question is actually not easy to answer, because the market is volatile, and no one can 100% accurately predict the market and guarantee that you can make a fortune right away if you buy Bitcoin now. As for when to buy, how much to buy, how to buy, and whether you can hold on to it after buying... In fact, many of Hualihuawai's past articles have provided some basic thinking logic and methodology for these questions, but the important prerequisite here is to make decisions based on your own risk preferences and position management. As long as it is an investment, there will be risks. As we mentioned in the previous article, don't easily enter a game you don't understand, and don't easily play a game you can't afford to play. Just understand this.
Regarding the issue of Bitcoin, our own views have not changed: as Bitcoin investors, from a long-term perspective, the only issue we care about is how many Bitcoins we have currently hoarded, and we don’t care about the price fluctuations of Bitcoin every day.
Perhaps it is precisely because of the interest rate cuts in the United States in the past two days that many people have regained interest in the market. Just two days ago (Beijing time September 19), the United States announced that it would lower the target range of the federal funds rate. Strictly speaking, this interest rate actually refers to the interest rate at which banks lend to each other. Since this ratio reflects the overall situation of the US economy and the global economy, the crypto market will also be greatly affected. This is indeed not difficult to understand, because the crypto market itself is actually a financial market.
In the article two days ago (September 19), regarding the topic of the Fed's interest rate cut, we have actually re-summarized some of the issues that some friends are concerned about. The interest rate hike and interest rate cut can be simply summarized in one sentence: Under normal circumstances, if the economy needs to be stimulated, as long as the Fed keeps the benchmark interest rate at a low level (achieved by lowering interest rates), people can borrow cheaper money from banks, thereby stimulating consumption and investment. Under this premise, various types of high-risk assets are certainly very attractive to investors, but with more and more money in the market, it is also easier to generate inflation, investment bubbles and other problems. Therefore, it is necessary to raise interest rates to curb inflation and other problems, but raising interest rates will prompt investors to increase savings, sell high-risk assets and seek safe havens, which may lead to economic downturn or recession. Then, interest rate hikes and interest rate cuts alternate with each other and affect the direction of the global economy.
If you want to further understand the issue of interest rate hikes and cuts, you may need to make some comparisons with history. Here we briefly review two typical historical periods:
- 2007–2008 financial crisis
- 2020–2021 Crypto Bull Run
Next, let’s take a look at what happened:
In 2007, the US subprime mortgage crisis triggered a global financial crisis and led to restructuring of the financial industry. The subprime mortgage crisis was a financial crisis caused by a sharp increase in mortgage defaults and foreclosures in the United States. It began to gradually emerge in the spring of 2006 and began to sweep across major financial markets in the world, including the United States, the European Union, and Japan, in August 2007.
Then, on September 18, 2007, the Fed cut interest rates for the first time from 5.25% to 4.75%, and eventually lowered interest rates to a historic low of 0–0.25%, as shown in the figure below.
However, the subprime mortgage crisis in 2007 also had some specific problems in the historical context of the time, such as the government's weak supervision of financial instruments and the government's failure to recognize (or delayed recognition of) the scale of the crisis.
After experiencing the subprime mortgage crisis, it seems that the Federal Reserve has become more experienced in dealing with such problems. In response to the COVID-19 outbreak that began in 2019, the Federal Reserve launched a new round of interest rate cuts (starting in July 2019 and ending in March 2020, with the interest rate from 2.5% to 0.25%) and launched a large-scale asset purchase program (in short, taking all necessary actions to protect and improve the economy) to maintain market liquidity.
Subsequently, the crypto market also ushered in an unprecedented bull market, and in 2021, Bitcoin also reached a record high of $63,000 at the time. As shown in the figure below.
Time quickly entered 2022. With the outbreak of the Russia-Ukraine conflict and geopolitical tensions, global inflationary pressure continued to rise. The Federal Reserve then shifted the focus of its policy to fighting inflation and resumed the interest rate hike cycle on March 17, 2022, which lasted for 16 months (11 rate hikes from March 2022 to July 2023), with a cumulative rate hike of 525bps.
Looking back, we can also find an interesting thing at that time: when the US was about to end the last round of interest rate hikes, that is, in June 2023, the crypto market, which was experiencing a bear market, seemed to have some new subtle changes in sentiment, because at that time (June 16, 2023), there was news that BlackRock (BlackRock, the world's largest asset management company) applied for a Bitcoin spot ETF. We have already explained this in a previous article (September 4), so I will not repeat it here, as shown in the figure below.
With the official approval of the Bitcoin spot ETF in January this year (2024), the price of Bitcoin has once again broken through its historical high, reaching US$73,000. Therefore, this round of bull market is also called an ETF-driven bull market by many people.
Then, after the crypto market experienced a climax in March 2024, time quickly came to September, and the Federal Reserve officially launched the third round of interest rate cuts, which is generally considered to be a long-term positive. Some people also predict that the crypto market will see a real bull market driven by interest rate cuts.
Although this rate cut is in line with general market expectations, some people have expressed some concerns. Some analysts believe that the Fed’s move to cut interest rates by 0.5% at this time does not rule out political motives, especially with the 2024 US presidential election approaching. The rate cut may be intended to stimulate financial markets to boost the Democratic Party’s prospects in the upcoming election.
If we look at it from this perspective, it means that although the current interest rate cut decision may boost the financial market in the short term, it may also re-exacerbate inflation pressure in the United States, so the market may also experience greater fluctuations in the coming weeks.
In addition, we also explained in our article on September 19: Although the Fed directly cut the interest rate by 50bps this time, it does not mean that it will enter a continuous interest rate cut cycle (Is it possible to stop after a few cuts, or cut a few times and then increase it again? Of course, the probability of this happening is also relatively low). And in our article on September 18, we also sorted out the three main differences between the previous interest rate cut cycle and this year's interest rate cut.
In short, it is definitely true that the Fed's interest rate cuts are good for the financial market in the long run, but there may still be some variables in the process. The interest rate cuts in 2001 were due to the Internet bubble, in 2008 it was due to the subprime mortgage crisis, and in 2020 it was due to the COVID-19 pandemic. In essence, these are all bailout-style interest rate cuts, which are common after a crisis. To put it bluntly, they are interest rate cuts triggered in response to certain unexpected conditions or emergencies. However, this interest rate cut looks more like a preventive interest rate cut, which often occurs when the economy shows signs of slowing down. To put it bluntly, it is a rate cut triggered to prevent possible economic downturns or recessions, and its main purpose is to stabilize the economy and employment. Generally speaking, bailout-style interest rate cuts are larger and last longer. Preventive interest rate cuts are generally smaller and last shorter.
Since it is a preventive rate cut, theoretically speaking, the Fed's subsequent rate cuts are not expected to be too large. If the interest rate can still remain at 2.75%-3% by 2025, then the performance of the US dollar will continue to be strong compared to many other countries. According to this logic, the amount of money that can be released by this rate cut is theoretically limited, and it is unlikely that there will be a flood like the one in 2020. As we mentioned in the article on September 18: The rate cut in 2020 occurred under special circumstances, and we are unlikely to see a replay of the script that directly triggered a large-scale crypto bull market with this year's rate cut. In addition to the factors of the rate cut itself, the crypto market has also faced some problems that it needs to face after two years of development (such as lack of innovation, a large number of new projects that will further dilute liquidity, etc.).
But then again, for the crypto market, any water is better than no water.
A few days ago, I saw a new idea from a friend in the group. In addition to paying attention to the US dollar, we should also pay close attention to the exchange rate between the US dollar and the Japanese yen, because:
- If the yen = Bitcoin strengthens
- Strong Yen = Weaker Bitcoin
Just yesterday (September 20, Beijing time), the Bank of Japan's monetary policy meeting decided to maintain the policy interest rate at 0.25%. In simple terms, after the Federal Reserve's 50 basis point rate cut, the Bank of Japan decided not to raise interest rates for the time being. As shown in the figure below.
Since Japan's decision not to raise interest rates this time is in line with market expectations, there didn't seem to be much volatility yesterday (including today). But I found that some experts on the Internet also predicted that the Bank of Japan might raise interest rates again this year, and most people bet on a rate hike in December. As for why Japan decided not to raise interest rates this time, in addition to some considerations such as inflation, the upcoming Liberal Democratic Party election (September 27) may also make the Bank of Japan more cautious about raising interest rates.
In short, the market will be on the verge of a critical period in the next few months. The risk of short-term volatility cannot be ruled out, especially in recent weeks. For ordinary traders, we believe that the best operation is still to do less swing trading and stay away from contracts.
If you already hold spot crypto assets (such as BTC or ETH), then don't bother with it anymore, just hold on and wait patiently for new opportunities to emerge. If you are still waiting, you can consider opening/adding positions in batches according to your risk appetite and position situation. Of course, we do not rule out the possibility of a sharp drop in Bitcoin in the future. If there is such an opportunity, just keep buying without hesitation.
The essence of the market is the change of liquidity, and money tends to flow from the greedy and impetuous to the patient. I think what we should do is to ignore these short-term problems and think more about and grasp the trends of the big cycle. Although this process is definitely tortuous, when we look back after the end of 2025, we may find that Bitcoin is now heading for a historical high.
This is the end of our sharing of this issue. For more articles, please visit the homepage of Hualihuawai. The above content is only a personal point of view and analysis, which is only used for learning records and communication, and does not constitute any investment advice.
