You can think of the global economy as a giant swimming pool, and the Federal Reserve is the manager who controls the water level in this pool.
Water in the pool = Money (liquidity) in the market
Water level = Amount of money and ease of borrowing
Water temperature = Market's investment enthusiasm
Federal Reserve rate cut (the manager starts pouring water into the pool)
When the economy is bad and everyone is hesitant to spend or invest, the Federal Reserve will cut rates.
Watering effect: A rate cut means the cost of borrowing money from banks has decreased. Banks have more money and are willing to lend it to individuals and businesses at lower interest rates. As a result, the 'water' (money) in the pool increases, and the water level rises rapidly.
Water flows downhill: When the pool is full, it will overflow. This excess 'hot money' needs to find places to make a profit. Traditional bank deposits and government bond interest rates are too low and unappealing.
Looking for 'high-yield risk zones': At this time, investors will begin to seek places with higher risk but also higher potential returns. The cryptocurrency market is like a high-risk, high-reward adventure pool next to this swimming pool that has huge fluctuations but may yield gold.
The result is: A large amount of water (money) has flooded into the cryptocurrency adventure pool.
More people are buying cryptocurrencies like Bitcoin and Ethereum, increasing demand, which naturally makes prices easier to rise.
The entire market has abundant funds, and everyone dares to take risks, making it easier for various altcoins to soar.
In simple terms: Interest rate cuts -> More money in the market -> Money flows into high-risk assets -> Cryptocurrency market surges.
To summarize:
The cryptocurrency market can be seen as an asset with 'extreme risk preference'.
Federal Reserve interest rate cuts: Equivalent to opening the floodgates of funds, a super favorable situation for the cryptocurrency market. With ample market liquidity, investors are willing to take risks, driving up cryptocurrency prices.
Federal Reserve interest rate hikes: Equivalent to closing the floodgates of funds, a super unfavorable situation for the cryptocurrency market. Market liquidity tightens, and investor risk aversion rises, leading to a drop in cryptocurrency prices.
Therefore, you will find that cryptocurrency players are like 'hawks' watching every move of the Federal Reserve. Every speech from the Federal Reserve Chairman is far more important than any call from a cryptocurrency KOL (key opinion leader). Because his decisions directly determine the flow of global funds, and the rise and fall of this 'adventure pool' in the cryptocurrency market completely depend on whether there is a continuous influx of 'water'.
In summary: The Federal Reserve is the creator of tides, and the cryptocurrency market is like the surfboard pushed highest by the tide. When the tide comes in, the boat rises; when the tide goes out, the boat may run aground.
