Interest rate cut is imminent: liquidity explosion

Recently, according to the CME "Fed Watch": the probability of the Fed cutting 25 basis points in November is 99.7%, the probability of keeping the current interest rate unchanged is 0%, and the probability of cutting 50 basis points is 0.3%. The probability of keeping the current interest rate unchanged in December is 0%, the probability of a cumulative 25 basis point rate cut is 19.5%, and the probability of a cumulative 50 basis point rate cut is 80.3%.

And before the non-farm payroll report, the probability of the Fed cutting 25 basis points in November was 93.1%, and the probability of keeping the current interest rate unchanged was 6.9%. The probability of keeping the current interest rate unchanged in December is 5.2%, and the probability of a cumulative 25 basis point rate cut is 94.8%.

As is well known, rate cuts may lead to another outbreak of liquidity, thereby pushing up the prices of US dollar assets.

In addition, according to Cointelegraph's analysis, the US spot BITCOIN ETF is expected to purchase its 1 millionth BITCOIN as early as this week, as traders are preparing for potential positive factors for cryptocurrencies in November, including the US election, the Fed's possible rate cuts, and Russia's lifting of the BITCOIN mining ban - all of which are happening in November.

According to data from Apollo and SoSoValue, US spot BITCOIN ETF issuers currently hold 976,893 BITCOINS, worth more than $66.2 billion, accounting for nearly 5% of the $1.34 trillion BITCOIN market cap. The spot BITCOIN ETF needs a net inflow of $1.55 billion (i.e., the purchase of an additional 23,107 BITCOINS) to reach this milestone.

However, Henrik Andersson, Chief Investment Officer of Apollo Capital, believes that the "most decisive factor" determining whether the crypto market will rise is Trump's victory: "If he really wins, we believe the momentum of risk assets could push BITCOIN to $100,000 by the end of the year."

And the Singaporean crypto investment firm QCP Capital said in a post that with only 2 weeks left until the US election, the current focus is on it. In the prediction market, Trump has begun to widen his lead over Harris, and the current polls in the key swing states are also leaning towards the Republicans.

The market is currently pricing in the possibility of Trump's re-election. Discussions about tariff hikes and tax cuts have led to a strengthening of the US dollar and a rise in US Treasury yields. Given Trump's more friendly stance towards cryptocurrencies, it is not surprising that the BITCOIN trading price has risen.

The Financial Times team has recently updated its forecast for the Fed's interest rate outlook, predicting that if Harris wins, the Fed may quickly cut rates next year. The analysis suggests that after a 50 basis point rate cut in September, the Fed may cut rates twice more by 25 basis points in 2024. The Fed will cut rates by a total of 100 basis points by the end of this year, lowering the federal funds rate to 4.25-4.5%. This is consistent with the Fed's September economic projections summary.

Recently, the Bank of Canada cut its benchmark rate by 50 basis points on Wednesday, lowering it from 4.25% to 3.75%, the largest reduction in borrowing costs since the initial outbreak of the pandemic in March 2020.

The Bank of Canada said this is a sign that the country is returning to a low-inflation era. To address soaring prices, the Bank of Canada had previously raised rates to their highest level in 20 years, but has cut rates four times in a row since June. The inflation rate in September fell to 1.6%, below the 2% target.

The European Central Bank has also lowered the deposit facility rate from 3.5% to 3.25%, in line with market expectations. It has also adjusted the main refinancing rate and the marginal lending rate from 3.65% and 3.9% to 3.4% and 3.65% respectively.

Furthermore, Citigroup economist Jin-Wook Kim stated in a report that the Bank of Korea may cut rates faster and more aggressively to address weaker-than-expected economic growth. Kim said the Bank of Korea may cut rates by 25 basis points in January, April and July 2025.

Previously, the Bank of Korea lowered its benchmark rate from 3.50% to 3.25% on October 11, initiating an accommodative monetary policy. He pointed out that the central bank may also cut rates twice more in 2026 - likely in January and July - to bring the policy rate down to 2.00%, lower than Citigroup's previous forecast of 2.50%.

The Fed's continued rate cuts will inject more liquidity into the global market and be positive for risk assets. With ample liquidity, the sentiment in the cryptocurrency market has improved significantly.