The Bank of Canada warns of a hawkish interest rate cut; is the frenzy in the crypto market just a flash in the pan?
Seeing the statement from Skiba of the Bank of Canada, I immediately flipped through the Federal Reserve's interest rate meeting minutes from the past six months. This wave of 'cutting rates but not continuing to cut' is like throwing a bucket of cold water on the frenzy in the crypto market.
Let's break down the core logic: a hawkish interest rate cut essentially means 'cut once and stop,' which is completely different from the market's previous expectation of an 'interest rate cut cycle.' It's important to understand how sensitive the crypto market is to liquidity—last year, when the Federal Reserve signaled an interest rate cut, BTC surged directly from $60,000 to $100,000, driven by expectations of continued liquidity. But this time is different; the U.S. economic data hasn't collapsed, and both employment and inflation haven't reached a hard landing stage, so the Federal Reserve has no need to continuously cut rates. This means that the market's hope for significant liquidity injection is likely to go down the drain.
For the crypto market, there may be a short-term impulsive rise, as the implementation of rate cuts will release some liquidity, and mainstream coins like BTC and ETH might ride a wave of heat. But don't expect the rise to last too long; once the Federal Reserve clearly indicates a 'pause in rate cuts,' investors will immediately realize the expectation gap, and retail investors who chased the highs could get stuck. Especially for altcoins, many meme coins are already speculating on rate cut expectations, and they are likely to be the first to crash.
Moreover, it's important to note the internal divisions within the Federal Reserve—if any committee member advocates for a more significant rate cut, market sentiment may fluctuate. However, based on the current economic fundamentals, a hawkish stance is likely to prevail since no one wants to repeat the mistakes of uncontrollable inflation in 2021.
The advice for friends in the circle is simple: don’t chase the highs on the day the rate cut is implemented; instead, you can reduce your holdings of mainstream coins when prices are high; if the Federal Reserve really pauses rate cuts later, the crypto market is likely to retest previous support levels, and buying low then would be a more prudent choice.
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