Oh my! The US interest rate cut has created huge ripples, is cryptocurrency going against the trend?

Impact dimensions and potential results Liquidity-driven: A rate cut lowers the returns on risk-free assets, or injects liquidity, and some funds may flow into cryptocurrencies. Change in opportunity cost: The opportunity cost of holding non-yielding assets decreases, increasing the attractiveness of cryptocurrencies.

Dollar exchange rate linkage: A rate cut weakens the dollar exchange rate, making cryptocurrencies cheaper for global investors, which may increase demand and enhance the narrative of hedging against dollar depreciation.

Increased risk appetite: Low interest rates encourage investors to take risks, amplifying market activity and volatility, and changing the flow of funds.

Market reactions in different scenarios Preventive rate cuts or soft landing: Market risk appetite increases, and risk assets like cryptocurrencies may rise collectively, with Bitcoin sometimes outperforming traditional assets.

Rate cuts to counter economic recession: Initially, there may be indiscriminate selling due to panic, but after continued easing, funds may flow back; during an economic recession accompanied by high inflation, the anti-inflation narrative of cryptocurrencies may attract safe-haven funds.

Positive news fully priced in or hawkish rate cuts: The market may have priced in expectations in advance, and prices may correct at the time of the rate cut announcement; hawkish statements from the Fed may disappoint the market, leading to price declines.

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