On September 18, local time in the United States (September 19, Beijing time), the Federal Reserve announced that it would lower the target range of the federal funds rate by 50 basis points to between 4.75% and 5.00%. This is the first rate cut by the Federal Reserve since March 2020. Influenced by the news of the rate cut, the crypto market gradually began to surge. On September 24, BTC broke through $64,000, up 6.7% in a few days, and ETH broke through $2,600, up more than 13%, driving most Altcoin to rise by more than 30%.
Historically, unless encountering a major economic crisis, the Federal Reserve rarely cuts interest rates by 50 basis points when starting a new rate cut cycle. Affected by the weak U.S. economy, experts from multiple institutions said that the 50 basis point rate cut in September is just the beginning, and there is a possibility of further rate cuts within the year, and there is a possibility that the cumulative rate cut will be 100 basis points by the end of 2024.
The Fed’s interest rate cut affects the global financial market, including the riskier crypto market. So, how will the crypto market develop in the future? Let’s start with the last interest rate cut.
BTC surged more than 10 times after the Fed’s last rate cut
According to statistics, the last time the Federal Reserve cut interest rates by 50 basis points was in March 2020, when it cut interest rates by 1 percentage point to 0-0.25% in response to the COVID-19 pandemic. After the rate cut in 2020, BTC started to rise from the price range of $4,000-$6,000 after "3.12", and reached the high of the last bull market at $69,040 in November 2021, with the maximum increase exceeding 10 times.
However, this interest rate cut only lasted once, after which the Fed changed its attitude again. Data showed that from March 2022 to July 2023, the Fed raised interest rates 11 times in a row, with a cumulative increase of 525 basis points. In a short period of time, the target interest rate range was raised from "0 to 0.25%" to a high of "5.25% to 5.5%". This is the largest interest rate hike in the Fed's interest rate regulation in nearly half a century.
In this historic rate hike, banking institutions experienced a liquidity crisis again, and many institutions such as the United States were inevitably sounded the death knell of the era. The crypto market also suffered a heavy blow. A typical case is the collapse of FTX. Although it is undeniable that FTX was full of internal sores, the key to piercing it was also the liquidity that was constantly tightening due to macro-tightening at the time.
Although the success of Bitcoin ETF this year has given cryptocurrencies a break, the gradually weakening liquidity has also left the local deep bear market hanging over the market. And just recently, with the September FOMC meeting approaching, after maintaining high interest rates for nearly a year, the macro market seems to have finally ushered in the dawn of light.
How do Fed rate cuts typically impact the crypto market?
The wait for this rate cut lasted for four years, but the financial market showed mixed performance before and after the announcement. All three major U.S. stock indexes turned negative, erasing the gains since the Fed announced its interest rate decision. In addition, spot gold has also completely given up the gains since the Fed announced its interest rate decision. On the other hand, the crypto market rose across the board, with BTC rising to more than $64,000 at one point, driving most Altcoin up 30%.
This sharp contrast reflects the unique response mechanism of the crypto market to interest rate cuts. Unlike traditional financial assets, the decentralized nature of cryptocurrencies and their relatively small market size make them more sensitive and volatile when facing changes in macro policies.
In the context of the Fed’s interest rate cuts, the cryptocurrency market usually experiences the following effects:
Investors' risk appetite rises
The interest rate cut has reduced the yield of traditional assets (such as bank deposits and bonds). In order to seek higher returns, investors tend to withdraw their deposits and turn to higher-return markets. Cryptocurrency has become the choice of many investors due to its high volatility and potential high returns. This may lead to the influx of traditional funds into the crypto market after the interest rate cut, pushing up the prices of mainstream crypto assets such as Bitcoin and Ethereum.
The impact of the depreciation of the US dollar
The Fed's rate cuts are often accompanied by expectations of a depreciation of the dollar. Rate cuts increase money supply, resulting in a decrease in the purchasing power of the dollar. For the cryptocurrency market, this means that the prices of assets such as Bitcoin and Ethereum, which are denominated in dollars, may rise. Because cryptocurrencies are seen as a tool to hedge against the depreciation of the dollar, when the dollar depreciates, investors may flock to the crypto market to protect their wealth from the decline in the purchasing power of the dollar.
Increased liquidity
Lower interest rates mean lower borrowing costs and increased liquidity in global markets. More funds will flow into the market, accelerating investment activities. Many of these funds will flow into the crypto market, especially in the context of global asset allocation, as institutional investors' interest in cryptocurrencies is rising. The massive inflow of funds will help increase market activity and push up cryptocurrency prices.
How will the crypto market perform after this rate cut?
After the Federal Reserve announced its decision to cut interest rates by 50 basis points, the most discussed issue in the market was when the next interest rate cut would take place.
The median of the Fed's dot plot shows that the Fed will cut interest rates by 100 basis points in 2024, and after a 50 basis point cut in September, there is an expectation of another 50 basis point cut. The Fed is expected to cut interest rates by another 100 basis points in 2025, the same as the rate cut expected in the June dot plot. The trend of US interest rate futures suggests that the cumulative rate cut will be 76 basis points by the end of 2024 and 196 basis points by October 2025.
In general, the interest rate cuts from 2024 to 2025 are undoubtedly a major positive for risky crypto assets, driving the continued rise in cryptocurrency prices in the coming year.
Standard Chartered Bank executive Geoffrey Kendrick recently captured the attention of the financial world with his extremely graphic claim that Bitcoin could reach $200,000 by the end of 2025.
If BTC will reach $200,000 in 2025 as Standard Chartered Bank said, it will undoubtedly have a huge impact on the entire crypto market. More investors may be attracted to enter the market, further promoting the prosperity of the market, and the market value of high-quality Altcoin projects will have room for growth of 10 to hundreds of times.
Matchain Token to be listed in the bull market
Matchain is the first decentralized AI blockchain built on BNB Layer 2. It has built the first second-layer Rollup solution through the Optimism (OP) stack, which can handle massive transactions and provide a low-latency interactive experience for decentralized applications (dApps). In addition, with the decentralized identity system, it effectively narrows the distance between Web2 users and Web3, while ensuring the privacy and security of user data.
Matchain has been in preparation since the bear market in 2020. After many technical iterations and optimizations, the mainnet is now online. It has more than 12 million ecological users, more than 7 million monthly active users, and hundreds of ecological cooperative developers. Everything is ready, and we are just waiting for the Matchain token to go online.
In the past, tokens issued in bear markets and listed on exchanges often performed poorly. In a bear market, due to the influence of the overall environment, the market is sluggish, users are not enthusiastic about participating, and there is a lack of market confidence, making it difficult to obtain ideal growth space and value returns after the token is launched.
But the situation is different in a bull market. The current backdrop of the Federal Reserve's interest rate cuts has brought a positive atmosphere to the crypto market. Traditional funds have begun to flow into the crypto market. The continued rise of cryptocurrencies has given the market continued confidence in participation, while also attracting a large number of new users to join.
In such an environment, it is undoubtedly a wise move for Matchain to launch its tokens in a bull market. Issuing tokens in a bull market can not only attract more investors’ attention with the help of the market’s heat, but also make full use of the influx of funds to push up the token price. Its huge user base and active ecosystem are expected to achieve rapid development and value growth under the blessing of the bull market.
As users who have participated in the Matchain ecosystem in the early bear market, they will have the opportunity to receive airdrops of Matchain tokens. Secondly, for users who have purchased Matchain nodes, the cost of obtaining tokens in the bear market will be relatively low. If the Matchain token is launched in the fourth quarter of 2024, it will coincide with the early and middle stages of the bull market, when the market is officially hot. These early users are expected to receive generous returns.
Of course, it should be noted that although the current situation seems optimistic, the crypto market is still full of uncertainty. Changes in regulatory policies, the emergence of technical loopholes, the rise of competitors and other factors may have an impact on the development of the market.
But in general, the Fed's continued interest rate cuts will create a relatively favorable environment for the crypto market. In addition, the Matchain ecosystem is also gradually growing, and it has held various ecological cooperation with the OKX exchange. The performance of its tokens after listing is very worth looking forward to.
