jakiro
Author: Divine Grace
The currency faucet was slowly turned on, but the cryptocurrency market welcomed this easing feast with an unexpected plunge.
The Federal Reserve announced an interest rate cut of 25 basis points as scheduled on October 30, lowering the federal funds rate target range to3.75%-4.00%, and plans to officially end quantitative tightening (QT) in December.This marks that the United States has officially entered a “new round of easing cycle” from “suspension and observation”.
However, at this moment when the carnival was supposed to begin, the encryption market showed surprisingly calmness and even pessimism.Bitcoin does not rise but falls.Behind this abnormal phenomenon is the market’s distrust of Powell’s “cautious easing” stance, and it is also a concentrated outbreak of concerns about global economic growth.
Policy Interpretation: The dilemma behind the Fed’s “hawkish interest rate cut”
On the surface, a 25 basis point interest rate cut is an out-and-out easing signal.However, an in-depth analysis of the Fed’s decision-making logic will reveal that there are deep worries hidden behind this interest rate cut.
The Fed’s dilemma is more complex than it appears.On the one hand, U.S. federal interest expenditures are close to historical highs, with interest expenditures accounting for more than23%— meaning that for every $1 in taxes received, $0.23 is used to pay interest.A rough estimate is that every 100 basis points of interest rate reduction can save about$350 billionannual interest expense.
On the other hand, inflationary pressures remain.U.S. core PCE price index rose year-on-year in August2.9%, unchanged from July and still above the Fed’s 2% target.This forces the Federal Reserve to be extra cautious when formulating policies to avoid prematurely starting a comprehensive easing cycle that triggers a rebound in inflation.
Fed Chairman Powell’s statement at the press conference fully reflected this dilemma.He made it clear that the rate cut was merely a “risk management” move and stressed that “there is no need to adjust interest rates quickly.”This “hawkish interest rate cut” in an attempt to balance the needs of all parties has only intensified the market’s concerns about the economic outlook.
Market reaction: Why don’t crypto investors buy it?
Interest rate cuts were supposed to increase market liquidity, but why did the crypto market fall instead?There is profound market logic behind this abnormal phenomenon.
The most direct reason isThe market has already digested interest rate cut expectations in advance.Before the Fed’s decision, the market expected that the probability of a 25 basis point interest rate cut was as high as99.9%.This highly certain expectation caused the classic market trend of “buying expectations and selling facts” after the announcement of interest rate cuts.
At the same time, Bitcoin’s leverage scale is approaching before the Fed’s decision$40 billionmark.This highly leveraged environment means that any small fluctuations can be amplified, causing wild price swings.When the news of interest rate cuts failed to bring unexpected stimulus, the liquidation of highly leveraged long positions further intensified the downward pressure.
The deeper reason is that the market has begun to question the Fed’s room to cut interest rates.The Trump administration’s potential tariff policies may raise the risk of upward inflation, causing the Federal Reserve to be cautious about the path to cutting interest rates next year.The expectation of a “shallow interest rate cut cycle” has weakened the optimism of a substantial easing of liquidity.
David Lawant, head of research at crypto prime broker FalconX, noted: “The expected slowdown in the pace of interest rate cuts in 2025 is not entirely surprising, but it has put some pressure on risk assets, including cryptocurrencies.”
Three key signals: revealing the true market trends
Putting aside the appearance of price fluctuations, on-chain data and market indicators are releasing key signals that reveal the true movements of the market.
Signal 1: Funding rates turn negative, suggesting that a periodic bottom is approaching
Bitcoin’s perpetual contract funding rate has turned negative again, which means “the cost of shorting has increased and leveraged long positions have become cheaper.”Historically, every time financing rates turn negative, the market reaches a stage bottom within a few weeks.This indicator shows that although market sentiment is pessimistic, it may be a good opportunity for reverse layout.
Signal 2: Whale funds are quietly accumulating funds, and smart money is quietly laying out plans
The number of addresses holding more than 100 BTC hit an all-time high.Whale funds are increasing their positions, while retail investors are waiting and watching. This is often a typical signal before the bull market starts.The firm confidence of large holders provides important support for the market.
Signal 3: Institutional funds have not left the market, they are just waiting for the opportunity
Since its launch, the Bitcoin spot ETF has attracted hundreds of billions of dollars in institutional funds.The total asset size of Bitcoin spot ETFs has exceeded:US$155.5 billion.ETF funds have had a net inflow of over US$2 billion for five consecutive days, indicating that institutions have not left the market but are waiting for a “confirmation signal.”
Is there a second half to the bull market?
Despite the challenging short-term moves, multiple indicators suggest that the foundations of the cryptocurrency bull market have not been shaken.
From a macro liquidity perspective, the market expects the probability that the Federal Reserve will cut interest rates again in December.95.8%.This means that the liquidity environment will continue to improve, providing support for risk assets.Historical data shows that during the Fed’s easing cycle, cryptocurrencies tend to achieve excess returns – during the 2020 interest rate cut cycle, Bitcoin soared from US$7,000 to US$28,000, with an increase of300%.
From the perspective of market structure, the current adjustment will help release high leverage risks.Looking back at history, deep corrections in cryptocurrency bull markets are not uncommon. During the 2017 bull market, Bitcoin exceeded 4 times20%corrections, but eventually hit new highs.
Analysts remain optimistic about the market outlook.Wall Street fortune teller Tom Lee predicts that by the end of this year, the price of Bitcoin may reach$200,000.Analysts at Wall Street investment bank Bernstein also said that Bitcoin will reach the level ofUS$150,000 to US$200,000between cycle peaks.
What is more noteworthy is thatThe 40-day correlation between BTC and gold is now negative, which is of historic significance.Looking back on the past, when this negative correlation occurs, Bitcoin often experiences explosive gains:
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Late October 2023: From US$25,000 to US$45,000
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Early February 2024: From US$40,000 to US$70,000
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Early November 2024: Soaring from 70,000 to 100,000
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Late April 2025: Soaring from 80,000 to 120,000
The current correlation has turned negative again, possibly signaling the beginning of a new upcycle.
Analyst disagreements on Bitcoin’s year-end price targets are also worth watching.The bullish camp expects Bitcoin to have a very big rise in the fourth quarter, with the year-end target seeing$150,000.The cautious side pointed out that if Bitcoin cannot return above $115,000 and remain at that level, the market will have deeper downside risks.
How do ordinary investors respond to the current market?
Facing a highly uncertain market environment, investors need to remain calm and adopt rational strategies.
Reducing leverage is the first priority for survival.The recent sharp fluctuations in the cryptocurrency market have caused a large number of highly leveraged traders to liquidate their positions. In an environment of increasing uncertainty, excessive leverage is tantamount to suicidal behavior.In the current market environment, maintaining low or zero leverage is the best protection against risks.
Adopt a strategy of building positions in batches, to avoid entering a heavy position at one time.The market below $105,000 provides a good opportunity to build positions gradually.Building positions in layers, setting stop losses, and retaining liquidity are the real weapons for crossing the cycle.
Focus on long-term value rather than short-term fluctuations.In addition to monetary policy factors, corporate reserves of Bitcoin and continued demand for exchange-traded funds (ETFs) may drive Bitcoin prices higher in the coming weeks.The real winner is not the one who predicts prices, but the trader who manages his or her positions and survives the fluctuations.
The abnormal performance of the crypto market after the Federal Reserve cut interest rates is not so much the ebb of the good news, but rather a reshuffle before the next big rise.When the market sentiment shifts from “brainless optimism” to “cautious wait-and-see”, the foundation of the real bull market becomes more solid.
The risk of a “heart attack” to the U.S. economy warned by Bridgewater Associates founder Ray Dalio exactly reflects the role of Bitcoinnon-sovereign assetsvalue.When the traditional financial system is faced with the vicious cycle of debt, the appeal of decentralized finance will only increase day by day.
History does not simply repeat itself, but it always rhymes with the same rhyme.Investors who sell in panic may soon find themselves dead before dawn.
