Today, let's talk about why there is a decline instead of an increase after the interest rate cut.
The market is often highly sensitive to the Federal Reserve's monetary policy, and interest rate cuts are usually seen as a positive signal for market increases. However, it is puzzling that after the Federal Reserve's interest rate cuts, the market experienced a decline instead of an increase. What is going on here?
On the one hand, the early digestion of interest rate cut expectations and investors taking profits are important reasons. As early as August, the market had already fully rendered and hyped the expectation of the Federal Reserve's interest rate cuts, with the performance of cryptocurrencies like Bitcoin and Ethereum being particularly evident, both of which reached peak prices in August. This means that many investors had already positioned themselves based on the interest rate cut expectations and made substantial profits. When the interest rate cuts actually occurred and became a fact, these investors, driven by a profit-taking mentality, chose to sell off their assets, triggering a wave of sell-offs in the market. The selling sentiment spread throughout the market, leading to significant downward pressure, making it naturally difficult for prices to rise.
On the other hand, concerns about an economic recession are also affecting market trends. The Federal Reserve's rate cut measures are often interpreted by the market as a sign of poor economic conditions, easily triggering investor worries about an economic recession. Take the U.S. employment data from September as an example; after the disappointing results, investors became increasingly concerned that the economy might fall into recession. Driven by this concern, investors are more willing to transfer funds out of relatively high-risk asset classes like cryptocurrencies and into safer assets like U.S. Treasuries, which have hedging properties. As a result, there has been a significant outflow of funds from the cryptocurrency market, leading to a drop in market prices.
At the same time, the uncertainty of policy expectations cannot be ignored. Although the Federal Reserve has implemented interest rate cuts, its attitude towards further rate cuts in the future is relatively cautious. Looking back at past monetary policies, for example, at the time of the rate cut in 2024, Powell publicly stated that he expected only two rate cuts in 2025, a forecast far below the market's general expectations. By September 2025, after this rate cut, he hinted that future monetary policy direction might be more cautious, and this ambiguous policy signal left investors feeling confused, increasing market uncertainty, and suppressing investors' risk appetite for cryptocurrencies, ultimately leading to the market not rising as it normally would after the rate cut.
In addition, issues related to liquidity have also negatively impacted the market. The long-implemented quantitative tightening policy has made overall market liquidity extremely tight, almost depleted. Even with favorable news like interest rate cuts appearing now, the tight funding situation is difficult to change in the short term, leading to a lack of sufficient capital in the cryptocurrency market to drive prices up, resulting in a lack of upward momentum and a downward trend.
Finally, from the perspectives of technical analysis and capital flow, the situation is also not optimistic. Major cryptocurrencies like Bitcoin and Ethereum had already reached historical highs before the rate cut, and the momentum for further increases is quite limited. Moreover, the capital flow has also shown signs of divergence, with Ethereum ETFs continuing to experience net outflows, while the net inflow of Bitcoin ETFs has started to slow down, and even some trading days saw net outflows. This weakens the overall buying power in the market, making it difficult to support price increases, thus leading to a decline in the market after the Federal Reserve's rate cut.
