Everyone is confused! Last week, the Federal Reserve announced an interest rate cut, which should, in theory, lead to liquidity easing and risk assets rising, but the cryptocurrency market fell instead, with Bitcoin dropping below the 90,000 USD mark. What is going on? Many retail investors do not understand; clearly, it is good news, so why is the market still falling? This article will clarify this 'liquidity trap' for everyone, telling you how to operate next and avoid stepping on the wrong rhythm!
First, let me educate everyone on a core knowledge point: the main driving force behind market rises is 'incremental liquidity', not 'interest rate cuts themselves'. This time, the Federal Reserve's interest rate cut was anticipated by the market in advance, which is considered a 'positive outcome'; many institutions had already positioned themselves before the rate cut, and after the cut, they instead began to take profits, leading to a market of 'buying the expectation and selling the facts'. More crucially, the market is currently not facing a situation of 'lack of liquidity', but rather 'liquidity being hesitant to enter the market', which I refer to as a 'liquidity trap'.
Why is liquidity hesitant to enter the market? There are mainly two reasons: first, the uncertainty of the macro economy. Although the Federal Reserve has cut interest rates, the ISM manufacturing index has been below 50 for 36 consecutive months, and signals of economic recovery are still unclear. Many institutions worry that interest rate cuts won't save the economy, so they hesitate to invest funds into high-risk assets like cryptocurrencies. Second, the fragility of market sentiment. Previously, Bitcoin fell from 126,000 to 86,000, with nearly 400,000 people liquidated. Market sentiment has reached a freezing point; retail investors hesitate to enter, and institutions are also on the sidelines. Without funds to support, it naturally cannot rise.
There is a huge pit that many retail investors are stepping into: equating 'interest rate cuts' with 'the start of a bull market'. I have seen too many people enter the market fully loaded right after an interest rate cut and ended up being schooled by the market. Everyone should remember that an interest rate cut is merely a 'signal', not a 'switch'. It takes time for liquidity to truly flow into the market after an interest rate cut, and there may be fluctuations in between. Entering the market now is like rushing in 'after the signal is given but before the switch is turned on', making it easy to get caught in short-term volatility.
Now, let's talk about the future trend. My view is very clear: in the short term, we will continue to bottom out, and we may even test the support level of 80,000 USD. In the medium term, we need to see if liquidity truly flows into the market. If U.S. economic data improves, and institutional funds start to enter, with Bitcoin's trading volume increasing and breaking through the resistance level of 94,000 USD, then it is highly likely we will see a medium-term rebound. However, if economic data continues to deteriorate, and liquidity still hesitates to enter, we may enter a longer bottoming process and possibly make new lows. But everyone need not worry too much; the core logic of the super cycle remains, and institutional funds will not leave easily. In the long run, we still hold an optimistic view.
Here are some practical strategies to avoid pitfalls, addressing the current 'liquidity trap': First, control your position. It's best to keep your current position below 50%, leaving 50% of funds to observe and wait for clear rebound signals before adding positions. Avoid being fully invested or fully liquid. Being fully invested may lead to a breakdown of mindset during downturns, while being fully liquid may cause you to miss rebound opportunities. Half positions are the safest choice. Second, pay attention to key indicators. Next, focus on three key data points: the net inflow of Bitcoin ETFs, U.S. non-farm employment data, and the ISM manufacturing index. If ETFs continue to see net inflows, non-farm data improves, and the manufacturing index rebounds, then that signals a rebound; otherwise, continue to observe. Third, choose quality assets. In a market with insufficient liquidity, funds will concentrate on quality assets. Bitcoin and Ethereum, being mainstream cryptocurrencies, have stronger resilience against declines, while altcoins without actual application scenarios may continue to decline or even go to zero. Therefore, avoid small altcoins and concentrate funds on mainstream cryptocurrencies.
Many people ask me if they should cut losses now. My advice is: if your position is highly leveraged and close to liquidation, then cut your losses quickly without hesitation; if it is low leverage or no leverage and you are holding long-term, then there is no need to cut losses—just endure this bottoming phase. In cryptocurrency investment, mindset is very important; do not be swayed by short-term fluctuations, but look at the long-term trend.
To be honest, the cryptocurrency market has never been smooth sailing; there is always a brutal bottoming process before each bull market. At this stage, it's not about who earns more, but who can survive. Follow me, and I will track core data daily. Once there are signs of liquidity warming, I will notify everyone immediately. If you currently feel helpless and confused in trading and want to learn more about the cryptocurrency market and cutting-edge information, follow me.
