Dovish rate cut warnings, is the crypto frenzy just a flash in the pan?
The expectation of "cutting rates but not continuing cuts" is essentially dousing cold water on the crypto frenzy.
Let’s break down the core logic: a dovish rate cut is fundamentally about "cutting once and stopping," completely different from the market's previous expectation of a "rate cut cycle." It’s important to understand how sensitive the crypto market is to liquidity—last year, when the Federal Reserve signaled a rate cut, BTC shot up 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 yet, and both employment and inflation haven’t reached a hard landing stage, so the Federal Reserve has no need to continuously cut rates, which means that the market's hope for a "massive liquidity injection" is likely to be dashed.
For the crypto market, there might be a short-term impulse rise, as the rate cut will release some liquidity, and mainstream coins like BTC and ETH may catch some heat. But don’t expect the rise to last too long; once the Federal Reserve clearly states "pausing rate cuts," funds will immediately realize the expectation gap, and retail investors who chased the highs may get trapped. Especially for altcoins, many meme coins are already being speculated on the expectation of a rate cut, and they are likely to crash first.
Also, watch for the internal divisions within the Federal Reserve—if some members advocate for a larger rate cut, market sentiment may swing back and forth. However, given the current economic fundamentals, a dovish stance is likely, as no one wants to repeat the inflation disaster of 2021.
The advice for friends in the crypto space is simple: on the day the rate cut is announced, don’t chase the highs; instead, consider reducing positions in mainstream coins at a high. If the Federal Reserve really pauses rate cuts afterwards, the crypto market is likely to retest previous support levels, at which point buying in low would be the more prudent choice.
