Source: Talking about Li and other things
In the article a few days ago, we mainly rethought the development of the market. As far as the current market sentiment is concerned, many people seem to have more and more new hope for the expectation of interest rate cuts (by the Federal Reserve).
The last time the crypto market benefited from interest rate cuts on a large scale was in 2020. Before the outbreak of the COVID-19 pandemic, the federal funds rate (the interest rate adjusted by the Federal Reserve) was not high, only 1.5% - 1.75%. However, in order to cope with the impact of the COVID-19 pandemic, the Federal Reserve made two emergency rate cuts within a month: the first was 50 basis points (0.5%), and the second was 100 basis points (1%).
As a result, the federal funds rate at that time was directly reduced to 0% - 0.25%, which meant that borrowing (credit) became easier than ever before. As borrowing costs decreased, a large amount of liquidity poured into the market (including the crypto market) and pushed up the prices of various risky assets, which also became one of the main driving factors of the bull market in 2021.
1. Trump’s obsession with rate cuts
A BBC report at the time (March 16, 2020) was also quite interesting: as the Federal Reserve urgently cut interest rates to zero and "used up all its ammunition at once", Trump, who had previously criticized Powell for being "ineffective", also rarely changed his tone and praised him, saying "great", "very good news", and "makes me very happy". As shown in the figure below.
It can also be seen from the reports at the time that Trump seems to have always had a "complex" about the issue of "interest rate cuts".
Five years have passed in a flash. I remember that after Trump was re-elected as president this year (2025), he also publicly stated that he understood interest rates better than Federal Reserve Chairman Powell. As shown in the figure below.
However, judging from a series of things Trump has done in the past two months, and the resulting huge volatility in the market (including U.S. stocks, crypto markets, etc.), it seems that the Fed still did not "listen to him" this time. This is also what many people in the market are speculating. The reason why Trump is doing so many things now is to "force" the Fed to cut interest rates.
2. The impact of interest rate cuts on the market
Let’s get back to the topic of the crypto market.
It is precisely because of the interest rate cut in 2020 that extremely low borrowing costs and greater liquidity are also nurturing the process of a new round of bull market.
But if we look back at historical price trends, we can also find that the effect of the interest rate cut at that time was not immediately reflected in the crypto market. The bull market did not break out until 2021. This is actually the point we mentioned in the previous article: the crypto market mainly enjoys "excess liquidity", that is, the large-scale liquidity brought about by the interest rate cut will first flow into traditional markets such as the US stock market, and then the excess liquidity will flow into the secondary-scale high-risk market such as the crypto market.
However, this situation will gradually change, because as more and more large institutions begin to deeply participate in the crypto market in recent years, the crypto market has become more and more synchronized with the U.S. stock market. Once the market has large-scale liquidity, some funds may choose to flow into the crypto market in advance.
As time enters 2022, because the interest rate cut (zero interest rate) also led to the continuous increase in inflation in the United States, the CPI reached a 40-year high. Therefore, the Federal Reserve restarted a new round of interest rate hikes, raising interest rates 6 times in 2022 alone (in March, May, June, July, September and December), and by July 2023, a total of 11 interest rate hikes, reaching 4.33% - 5.50%, the highest level in 20 years. As shown in the figure below.
If we look at it from a time perspective, the period of 2022-2023 also happens to be a new round of bear market in the crypto market.
As time continues to move into 2024, the Federal Reserve has resumed cutting interest rates (a new round of interest rate cuts began in September 2024) and injected new liquidity into the market. Coupled with the promotion of macro narratives such as ETFs and the hype of some new internal narratives such as the BTC ecosystem, the crypto market has reopened a new round of bull market.
And we can also see from the continued growth of stablecoins that some funds only began to enter the market on a large scale at about that time. We have also experienced what happened afterwards, such as: the massive boom of MemeCoin (price speculation), BTC breaking through the $100,000 milestone and continuing to create historical highs...
So, what will happen next? I don’t know. We need to pay attention to the Federal Reserve’s interest rate meeting next week (March 19), as shown in the figure below.
However, judging from some current forecast data, expectations for a rate cut in June are still relatively high, as shown in the figure below.
Although the expectation of interest rate cuts this year is still there, we can actually find the difference between the interest rate cuts in 2020 and 2025 through the above text: in addition to the difference in starting interest rates, the biggest difference is the speed of the interest rate cuts. The speed and magnitude of the previous round of interest rate cuts were relatively large, and this round of interest rate cuts currently looks like a slow and gradual process, unless a larger-scale black swan event occurs, such as the U.S. stock market circuit breaker we mentioned in the article a few days ago (March 11).
As we mentioned above, the crypto market mainly enjoys excess liquidity. Even if this situation may change in the future, if the interest rate cut process is slow and gradual, then for the current crypto market, it may also be a gradual market, which will make trading more difficult and require caution for ordinary investors, unless extreme conditions also occur, such as:
On the positive side, the other two of the three core factors (narrative, macro, and policy) mentioned in our previous article are met, that is, new changes or innovations within the crypto market (not visible at the moment), or new major positive stimulus in policy, the policy here mainly refers to the United States (of course, if a certain big country in the East can open up, then it will be a bigger positive, but it is impossible at present). On the negative side, a black swan event bigger than the tariff war can directly bring the market down.
Trump said: Make America great again!
Leek said: Viagra is fine, as long as the interest rate can be lowered!
