jakiro
In the past two days, many friends in the currency circle have the same question: “Isn’t it said that interest rate cuts are good for risky assets? Why did the currency circle collapse instead?”
As soon as the Federal Reserve announced an interest rate cut last night, many currency enthusiasts immediately rushed into the market and immediately jumped 10 times or 100 times. As a result, when they woke up in the morning, their positions were liquidated, and they were back before liberation overnight.
In fact, this happens every cycle.Cutting interest rates seems to be a good thing, but the logic is not that simple at all.
What is good is bad when it comes to fruition
The market situation in the currency circle always rises in expectations and falls in reality.Even before the Fed’s announcement, the market was already betting on “an interest rate cut,” with institutions, whales, and retail investors entering the market in advance.When the news officially comes to light, the main funds will choose to cash in on the market. Therefore, the news is good, but the market has turned negative.
One sentence summary is – “Good news is not the beginning, but the end.” In the first month of almost every interest rate cut in history, the crypto market has experienced similar “fake good news.”
Because what the market is really worried about is not interest rate cuts, but: Why should interest rates be cut?This means that the economy may have problems, and funds will give priority to saving the real economy, not necessarily the currency circle.
Cut interest rates ≠ release water, liquidity will not come in
Many people regard interest rate cuts as “turning on the faucet”, but in reality, interest rate cuts are just a signal – the faucet is open, but the water may not flow to you.Banks are unwilling to lend, market capital is still tight, and the U.S. Treasury Department is issuing bonds to suck up liquidity. Institutions are more willing to buy U.S. bonds and gold than high-risk crypto assets. In other words, there is indeed more money, but it has not entered the currency circle.Cutting interest rates to save the economy may not necessarily save the market.
Risk appetite is ebbing
The interest rate cut cycle usually occurs during an economic downturn, when corporate profits decline, employment weakens, and market expectations become more cautious.When risk appetite declines, the first assets to be sold are always the most volatile assets – such as Bitcoin and Ethereum.
So you will see: gold rises, U.S. bonds rise, and the U.S. dollar returns, but the currency circle dives.Funds are withdrawing from risks, not chasing returns.
Expectations have changed, which is more fatal than the result
Sometimes, the plunge is not because of this interest rate cut, but because the market finds that there may not be as many interest rate cuts in the future.
For example: “This time it will be reduced by 25 basis points, but it implies that there will be no further reductions within the year.” The market immediately understood that the easing cycle was not as aggressive as expected, so it directly smashed the market.The market situation in the currency circle is always dominated by “expectations” rather than “facts”.
Let’s analyze yesterday’s news based on the above points:
Last night, the Federal Reserve continued to cut interest rates as expected by the market, cutting interest rates by 25 basis points. At the same time, it decided to abandon quantitative tightening (QT) and end its plan to reduce its balance sheet (shrinkage) after one month.Federal Reserve Chairman Powell said at the press conference after the meeting that there is still upward pressure on inflation in the short term and downward risks to employment. The current situation is quite challenging. The committee still has large differences on whether to cut interest rates again in December. An interest rate cut is not a certainty.Some members of the FOMC believe it’s time to pause.Powell said higher tariffs are driving up prices in certain categories of goods, leading to higher overall inflation.
It is undeniable that the interest rate cut and the end of the balance sheet reduction are all good things, but there have been disagreements about the December interest rate cut. Secondly, the flow of water is still on the US stock market and has not been diverted. It can be seen that the US stock market has broken new highs in a row. Although gold has experienced a correction, its rise is still gratifying. Is there no chance for crypto?Of course, you have to queue up, and the market outlook can be expected. In the short term, it will still be range-bound. Just build a box around 3700-4300.
Today’s pin insertion must be attributed to Huang Mao. It’s not convenient to talk about the news here. You can just check it out.
