The price of Bitcoin recently dipped to around $59,000 on October 10, but then began to rise, reaching around $68,000 just 5 days later on October 15. Not only that, many Altcoins also started a major rally, with the price of SUI (click to see more analysis) rising by over 30% in just a few days, and some meme coins even seeing gains of over 50%.
While the start of the bull market is certainly pleasing, the crypto market is also facing certain risks, making one wonder whether the recent sudden surge can be sustained, and whether a crash will follow the rally.
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ToggleThe rise in Bitcoin price is not primarily due to rate cuts
The Bitcoin price (click to see more analysis) rebounded after reaching a low of $59,000 on October 10. However, it is puzzling what exactly triggered this rally, as the Fed had recently suggested that the previous 50-basis-point rate cut may have been a mistake. The market seems to believe that only further rate cuts by the Fed can provide more liquidity to drive the market upwards.
However, investors should note that from the end of last year to the beginning of this year, the Fed did not cut rates, yet Bitcoin still rose from around $20k to around $60k. This is because injecting liquidity into the market does not necessarily require rate cuts. For example, the Japanese yen is in a low-interest-rate environment, while the US dollar is in a high-interest-rate environment. Investors can borrow low-interest yen and convert it to US dollars to invest in high-yield US dollar assets, which is essentially a risk-free trade and a major factor driving the Bitcoin bull market at the beginning of this year.
Therefore, rate cuts may not necessarily bring a significant amount of liquidity in the short term, and the wider interest rate differential between the US dollar and Japanese yen is the true source of current liquidity. If the USD/JPY exchange rate rises, indicating a widening of the interest rate differential, it would be more favorable for the financial markets. The USD/JPY touched around 140 on September 18 and has since rebounded, now approaching 150, which helps explain the recent overall recovery in the crypto market.
As for rate cuts, they can certainly bring more liquidity, but unless the Fed implements another large-scale cut like during the COVID-19 pandemic in 2021, the short-term effect will likely be insignificant. Moreover, rate cuts could lead to a narrowing of the US-Japan interest rate differential, potentially impacting the market's upward momentum. Therefore, unless there is a large-scale rate cut, investors need not place too much importance on the prospect of rate cuts in the short term.
Altcoin rally, or the last bull market wave in 2024
After Bitcoin's initial rally, many Altcoins have also experienced a long-awaited upswing. For example, the previously controversial Ethereum has recently seen its Ethereum price (click to see more analysis) rebound from around $2,400 to around $2,600, indicating that Ethereum's fundamentals have not deteriorated to the point of losing market recognition, and it can still see gains when the market rallies.
Additionally, the prices of the public chains Sui and Aptos (click to see more analysis) have also seen decent gains recently. The main narrative around these two is that they are "Solana alternatives". While their recent price increases have been notable, investors should be aware of the potential risks. The "Solana alternative" narrative itself suggests that this is not a sustainable trading theme, as Solana itself does not have any major flaws or controversies, and its ecosystem is much more mature than those of Sui and Aptos. According to a market report by Wintermute, Solana is currently dominating token generation, with its market share rising from 60% in early September to 86%, and weekly token generation increasing from 45,000 to 110,000. This indicates a very high level of market recognition for Solana, making the need to "replace" it questionable. Therefore, Sui and Aptos may only be suitable for short-term trading, and their long-term investment value has not yet materialized.
