Written by: Asher Zhang
At 7:00 on September 11, the author published an article titled "Is the Crypto Bull Market Gone? So far, BTC has never disappointed everyone who persisted." This article was written a few days earlier than the release time, when the market was in a pessimistic mood of panic and downward movement. So far, Bitcoin has indeed not disappointed everyone who persisted. Now, with the Fed's 50 basis point rate cut, the macro market and the crypto market are undergoing tremendous changes. How will these new changes affect Bitcoin? What quiet changes are taking place in the crypto market?
Bitcoin breaks through the downtrend line, resistance becomes important support
With the stimulus of the Federal Reserve's interest rate cut and other news, Bitcoin has risen sharply recently. The fear index has risen sharply in recent days and has now exceeded 50, changing market sentiment.
From a technical analysis perspective, Bitcoin is clearly in a bearish trend. Crypto research agency 10x Research said in a post on the X platform that Bitcoin remains one of the most attractive assets in terms of risk/reward potential. At present, BTC's breakout of Bitcoin's downward trendline may indicate stronger upward momentum, with the 21-week simple moving average ($60,996) being a key indicator for determining whether it is in a bull market (above) or a bear market (below). Breaking through this level could set BTC's target at $65,000 (now within reach). It is worth noting that the current trading signal has increased long positions to 70% of net long positions for the first time. Based on historical pattern analysis, this shift suggests that Bitcoin and Ethereum may offer attractive buying opportunities next, with a time span of 2-3 months.
After the rate cut, market risk appetite increased, and Bitcoin attracted financial market attention
In the early morning of the 19th, the Federal Reserve announced a 50 basis point rate cut, lowering its overnight lending rate range from 5.25%-5.5% to 4.75%-5%, the first rate cut in four years. In the early morning of the 20th Beijing time, US stocks closed higher on Thursday, led by technology stocks. The Dow Jones rose more than 500 points, and the S&P 500 closed above 5,700 points for the first time, both hitting record highs. Bitcoin changed its previous trend of following the decline but not the rise, and this time BTC performed very well.
The reason why both the macro market and the crypto market have performed so well is related to the Fed's 50 basis point rate cut. Previously, the market generally believed that the Fed would cut interest rates by 25 basis points. Now the rate cut exceeded expectations by 50 basis points, which surprised some investors. However, the market is more accepting of this. Regarding the Fed's rate cut, the market was mainly concerned about two things before: one is the US economic recession, so the Fed had to cut interest rates sharply; the other is the strong US economy, so the Fed cut interest rates slowly, which makes liquidity still not very sufficient. But now the US economy is strong, and the Fed has released a lot of money, which can easily stimulate market optimism, the market's risk appetite has increased, and risky assets such as Bitcoin have also been sought after. Affected by this, the net inflow of funds into Bitcoin spot ETFs has continued to rise recently.
Regarding the Fed's 50 basis point rate cut, Jeremy Siegel, professor emeritus at the Wharton School of the University of Pennsylvania, said on Thursday: "This is the best news I have heard from the Fed in many years. This news is great for the market and it is also good news for the economy."
Why did the Fed cut interest rates by 50 basis points? Fed Chairman Powell said after the FOMC meeting on Wednesday that with the US economy still strong, starting the central bank's tightening policy reversal with a large interest rate cut will help reduce the possibility of an economic downturn. I don't think anyone should see this as a new rhythm. We are adjusting policy to a more neutral level as the economy develops and moving forward at a pace we think is appropriate.
Overall, the Fed's 50 basis point rate cut directly boosted the market's confidence in the soft landing of the U.S. economy and increased investors' market preferences. This has reversed the downward trend of crypto assets such as Bitcoin, which have been sought after by the market and have seen a continuous net inflow of funds. However, it is worth noting that the Fed's policy is more flexible and is not a single continuous rate cut. In the future, U.S. data will still have a great impact on the crypto market.
The Fed’s influence is certainly great, but it is still industry innovation that affects Bitcoin
Bitcoin is essentially an emerging high-risk asset, which is different from traditional financial risk assets. For example, few countries use risk assets as national legal tender, but Bitcoin, which is also a risk asset, is increasingly used as legal tender by some small countries. This is related to its financial attributes such as decentralization and scarcity. Therefore, the analysis of Bitcoin is not as simple as the analysis of financial assets. This is also the view that the author has always insisted on: Bitcoin is a high-risk asset, but what drives Bitcoin in essence is still the technological innovation and application of blockchain. Bitcoin may only be a risky asset in the traditional financial market, but it is regarded as digital gold in the encryption industry or Web3. Therefore, with the continuous development of the blockchain industry, the technical attribute support behind it will become more and more obvious.
At present, some traditional financial institutions have gradually realized that the risk asset attributes of Bitcoin are different from those of traditional risk assets. BlackRock said in a research report: Bitcoin is obviously a high-risk asset due to its high volatility. However, most of the risks and potential return drivers faced by Bitcoin are fundamentally different from traditional high-risk assets. As a scarce, non-sovereign, and decentralized global asset, Bitcoin has made some investors regard it as a safe-haven option when market panics and certain geopolitical turmoil occur. In the long run, the adoption trajectory of Bitcoin may be driven by the intensity of concerns about global monetary stability, geopolitical stability, U.S. fiscal sustainability, and U.S. political stability. This is contrary to the general relationship between traditional risk assets and this force.
Overall, in addition to the impact of the Fed’s interest rate cut, BTC’s recent rise is also closely related to the increase in on-chain activities caused by ecological development.
Recently, Fractal Bitcoin has attracted much attention from the market. Launched by the Unisat team, Fractal Bitcoin is also the Layer 2 of Bitcoin. It is known as "the only native Bitcoin expansion solution at present". It focuses on stronger compatibility with Bitcoin and shared security. Without changing the original Bitcoin code, it improves transaction speed and increases transaction confirmation time to 30 seconds. Compared with the at least 10 minutes of the Bitcoin mainnet, TPS is increased by more than 20 times.
In addition to Fractal Bitcoin, Stacks, as the most well-known Layer 2 in the Bitcoin ecosystem, ushered in the Nakamoto upgrade on August 28. For Stacks, this upgrade is of great significance, mainly in four aspects: 1) Stacks' output has been changed from 1,000 STX rewards per Bitcoin block to 500 STX; Stacks' block production is decoupled from Bitcoin's block time, and the block confirmation time has been reduced from more than 10 minutes to 10 seconds, and TPS has increased by more than 60 times; 3) The new consensus mechanism writes the historical data of the Stacks chain into the Bitcoin block. Without changing the Bitcoin block data, the Stacks block data cannot be tampered with; 4) The decentralized anchor coin sBTC is launched.
Summarize
Overall, the main stimulus for the rise of Bitcoin this time is the 50 basis point rate cut by the Federal Reserve; but the deeper reason is that there have been some positive developments in the Bitcoin ecosystem, which in turn has promoted a certain recovery in the activity on the chain. The author is optimistic about the future market, but the current urgent need for the encryption industry to solve is application innovation. In the current context of the extreme lack of application innovation, the path of Bitcoin's rise still lacks a certain internal boost. In addition, the Federal Reserve's path to rate cuts will still take into account various economic data. Although it is optimistic overall, it should also remain cautious.
