After analyzing the interest rate cuts over the years, let's take a look at the interest rate cut cycle we are about to face.
This interest rate cut cycle is neither the purely "preventive" one from 1995 nor the "firefighting" one from 2007, and it certainly does not have the "panic" background of 2020. Rather, it has its own magnitude and rhythm.
Although the market expects a rate cut of 25 basis points this time, the more important aspect is the subsequent interest rate cut path. If the Federal Reserve cuts rates by a total of 100-150 basis points over the next 12-18 months as the market speculates, the intensity of the cuts will be between the moderate cuts of 2019 and the extreme cuts of 2020.
This will determine the scale of new liquidity in the market, thereby affecting the speed and magnitude of capital inflows into the cryptocurrency and US stock markets.
Currently, the unemployment rate, GDP growth, and inflation data in the US are relatively healthy, but if the economic data deteriorates, such as a significant rise in unemployment or a recession in GDP, the Federal Reserve may adopt a more aggressive interest rate cut strategy.
This would make this rate cut closer to a "relief type," causing the market to fluctuate in the short term due to panic.
Conversely, if the economy remains robust, rate cuts will continue in a "preventive" manner, and the market may enter a phase of "rational prosperity."
Unlike the cryptocurrency market being at a low point in March 2020, Bitcoin and the US stock market are currently at historical highs.
The S&P 500 index has risen over 20% this year, while Bitcoin is also nearing $115,000. Rate cuts at high levels may mean limited upside potential or trigger profit-taking, and the market will need time to digest these high valuations.
Additionally, the US government's debt-to-GDP ratio has reached 123%, far exceeding historical levels, which limits the government's ability to boost the economy through fiscal stimulus.
The approval of Bitcoin ETFs is a watershed moment in this round of interest rate cuts. It provides institutions with standardized investment tools, making it easier and more scalable for them to allocate cryptocurrency assets.
However, unlike the blind chasing of highs seen in 2020-2021, current institutional investors are more mature and rational, and their investment behaviors will influence whether the market steadily rises or experiences severe fluctuations.
Moreover, the performance of traditional assets (such as gold) will also divert some funds, impacting the capital inflow into the cryptocurrency market.