Family, who understands! Just yesterday, the European Central Bank decided to 'stay put', and the market immediately began to speculate about a 'rate hike scenario', with some even calculating that tightening would occur by 2027. But today, they were collectively 'slapped in the face' by central bank officials! As someone who has been in the crypto world for many years, I need to dissect this matter with you. This 'reverse operation' by the central bank is even more thrilling than the needle spike in the crypto market, and the signals hidden behind it are crucial for our trading and asset allocation!
First, let’s quickly recap the previous context: Just on Thursday, the European Central Bank announced that it would keep interest rates unchanged and also raised some economic growth and inflation forecasts. Once this news came out, the market reacted as if it had been injected with adrenaline, interpreting it directly as 'the cost of borrowing has peaked, and from now on, it can only go up and not down', with some institutions even starting to call for a rate hike expectation in 2027. To be honest, this kind of 'jumping to conclusions' is exactly the same as the retail investor mentality in the crypto world chasing after favorable news to drive prices up, completely forgetting that the central bank has always been someone who 'leaves some words unspoken.'
As expected, it wasn't long before the 'big shots' of the European Central Bank collectively stepped in to cool down the situation. The central bank governors from France, the Netherlands, and Austria all spoke up, and the core message was one sentence: 'Don't jump to conclusions too early!' Especially the governor of the Austrian central bank, Katzler, spoke very frankly: 'Our current situation is not optimistic, and the uncertainty is ridiculously high... if it really comes to that, continuing to cut rates is possible, and raising rates is not out of the question either.'
Let me insert my personal opinion here: this wave of officials collectively 'singing out of tune' is definitely intentional. Many people only see the 'upward revision of economic forecasts' and think it means tightening, but they overlook the central bank's core principle of 'prioritizing uncertainty'. In my view, this is a typical 'dovish statement': even if the data looks a bit better, we must never let the market lock in the expectations of 'rate hikes'; we must leave enough room for future easing. After all, everyone has an idea of how the foundation of the European economy is doing; if there is a drop in growth later, a rate cut is still the most reliable option.
The key point is here: what impact does this have on our crypto circle? Here comes the essential part, take notes!
First, look at the euro's movement. If the market takes the central bank's words to heart and starts to expect rate cuts again, the euro will likely be pressured to weaken. The strength of the euro against the dollar directly affects the liquidity of global risk assets—if the euro weakens, funds may lean more towards dollar assets, which could squeeze the liquidity in the crypto market; but if future economic data suddenly improves and rate hike expectations rise again, a stronger euro might actually provide some support to risk assets.
Secondly, look at the bond market. Previously, the market expected interest rate hikes, and bond yields faced upward pressure, while bond yields serve as the 'anchor' for global asset pricing. An increase in yields raises the financing costs of all risk assets. Now that the central bank has doused the cold water, the expectations for rate hikes have cooled, and the upward space for bond yields has been constrained, which is an indirect benefit for risk assets, including cryptocurrencies; at least the financing costs won’t rise so quickly.
Thirdly, look at the linkage between European stocks and crypto. If the easing expectations persist, European stocks, especially growth stocks, will likely be boosted. European stocks and the crypto market have a strong correlation in terms of risk appetite; if European stocks stabilize, it can also reduce the volatility in the crypto market. This is considered a 'hidden benefit', especially for those crypto projects that are closely related to the European economy.
The most crucial point, which I emphasize repeatedly, is that the European Central Bank is still in a 'data-dependent' mode. In simple terms, whether there will be a rate cut or a rate hike in the future depends entirely on the economic data, such as whether inflation stabilizes, the state of the job market, and whether economic growth can be realized. For us, instead of guessing the central bank's policies, it’s better to focus on Europe’s core economic data, as data is the hard indicator for judging the future direction of the market.
To summarize my core viewpoint: this time the market is a typical case of 'overthinking'. The European Central Bank's actions are meant to douse the 'interest rate hike fantasy' in cold water, clearly telling everyone that 'all policy options are open, don't blindly take sides.' For us crypto investors, there's no need to panic excessively, and don't be blindly optimistic either; the key is to remain cautious, follow the data, and not be swayed by market emotions.
To be frank, the current global central bank policy is all about 'taking one step at a time'. The crypto market is inherently sensitive and easily influenced by macro policies. I will continue to monitor the dynamics of the European Central Bank and subsequent economic data, and I will synchronize with everyone as soon as there are new developments. Do you think this round of the central bank's 'cooling down' can stabilize the market? Are you more optimistic about rate cuts or rate hikes in the future? Let's discuss your views in the comments.
