Interest rate cuts = bull run?

Source: Talking Outside of Talking Li

Time is the most fair existence; everyone has time, but many people only realize that time is their greatest wealth when they lose it.

At the beginning of the year (January 3rd), we published a topic article on the 16th anniversary of Bitcoin's birth, which listed the price changes of Bitcoin over the past decade in a chronological manner, as shown in the figure below.

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I remember some friends commented after seeing it, expressing that they missed the golden period of Bitcoin's surge. If they had casually bought dozens of Bitcoins ten years ago and held onto them until now, they would have at least 300 times the profit.

In theory, it can be said that, but buying Bitcoin ten years ago and holding onto it until now is a very difficult thing to do, because for most people, it is impossible to have such extreme patience.

1. The market is a manifestation of emotions.

Time is the greatest advantage for everyone, but this advantage requires enough patience to be fully utilized.

Especially when it comes to investment, one should never have any kind of complacent mindset. Don't think that you can always outsmart the market with your intelligence and wit. The market really doesn't care how smart you are. Ultimately, the market is just a reflection of emotions. Only by trying to overcome our own emotions and being able to reasonably hedge our reckless behaviors can we have the opportunity to maximize the advantage of time.

In the previous article (August 5), we mainly discussed the topic of "opportunity" and mentioned that the market never lacks opportunities. From my own perspective, I believe that waiting for opportunities is a good thing because the market will provide us with compounded opportunities, which are opportunities that can continuously accumulate and generate additive growth.

Take a simple example, let's talk about Bitcoin. As long as we can make good use of the advantages and patterns of cycles, identify extreme situations in the market, remain calm and patiently wait for some opportunities, avoid frequent trading, refrain from casually leveraging, and persist through several cycles, we will likely achieve good results.

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Of course, there is a premise here that choosing the right goals and systems is more important than short-term efforts. To put it more straightforwardly, if you find an investment opportunity with an average annual return of 10% and stick with it for the long term, the returns after several decades will definitely be considerable, and assets like Bitcoin remain one of the best choices.

I remember in the first two years of entering this field, like most newcomers, I often liked to keep an eye on the exchange backend and wallet balances, focusing my trading goals on changes in profits (floating income). The result was that I often emotionally inclined myself to force various trading operations to earn more income each day, but at the same time, this led to inner restlessness and increasingly irrational trading, and sometimes even losses.

As I later began to change my strategy and shifted my trading focus to holding coins, I transformed from a frequent swing trader to a periodic swing trader (making trades only a handful of times a year). My mindset gradually improved, and I also had more time and energy to engage in new thoughts and reflections.

As for me right now, when it comes to trading, I don't really care if I haven't traded for a few months or if I haven't made any money, or if my wallet account has experienced significant changes (floating losses in U-based) due to sharp market fluctuations. I firmly believe that this market will continue to rise in the long term. What I value are the opportunities in the next 5 years, 10 years, or even 20 years; as long as I maintain my patience.

If we truly understand that the market is just a manifestation of emotions, then what we need to do becomes relatively simple. When people feel fear, we can go against that fear, and when people start to become optimistic or experience FOMO, we can begin to sell in batches (and continue to wait for new opportunities to accumulate on dips).

As many people know, Buffett's classic saying goes: Be greedy when others are fearful, and be fearful when others are greedy. The essence of Buffett's statement is not only the literal contrarian thinking but also emphasizes the importance of self-emotion control in investing, meaning that investment requires rationality rather than following the crowd.

But the reality is often that, while many understand the principles, many still do not live a good life. In terms of investment, perhaps experiencing losses or setbacks is the best teacher for oneself. This might also be an interpretation of "suffering losses is a blessing." Therefore, there is no need to be afraid of temporary losses; experiencing losses early on is not necessarily a bad thing. However, one should conduct timely reviews, reflections, and summaries after losses to avoid mindlessly falling into continuous losses and ultimately being ruthlessly eliminated by the market.

Being able to make more money is certainly something to be happy about, but we can also change our perspective. When making money no longer excites a person, perhaps they are really not far from achieving success in earning. Conversely, if a person still feels excited about making money from a specific trade, they might make even bigger mistakes in new trades.

In summary, we need to learn to become calm investors, find the balance point of our risk preferences, and maintain focus and patience based on a higher time frame to achieve sustainable preservation and appreciation of our investment portfolio.

Of course, if you still believe that you are the chosen one, capable of defeating the market, and even able to seize the opportunities for overnight wealth like certain individuals mentioned in reports, then you can go on gambling or playing. I won't stop you because it's impossible to stop you, and I have no obligation to do so.

2. Interest rate cuts = Bull market?

In terms of current sentiment, although Bitcoin remains at the high level of $110,000 and has achieved an increase of about 60% since April, from the perspective of retail investors, people seem to still be in agony.

Because many retail investors thought that Bitcoin at $20,000 was too expensive in 2023 and wouldn't buy it, thought that Bitcoin at $50,000 was too expensive in 2024 and wouldn't buy it, and similarly, this year thought that Bitcoin at $80,000 was too expensive and wouldn't buy it either. As a result, they have been holding a large proportion of altcoins while waiting, and for many, this waiting has slowly turned into a kind of torment, with their initial targets of 100 times or 10 times... slowly becoming just hoping to break even. These people wander daily through the comment sections of major KOLs, watching the KOLs shout that the altcoin season is still ahead, thus continuing to hold onto their fantasies of making money amid the torment.

As for the topic of copycat seasons, we have discussed quite a bit in our previous articles, so we won't go into detail here. What we want to say is a fundamental principle: if the market allows everyone to make money, then where is the money you earn supposed to come from?

Simply put, the money you/I earn is also the money others lose. The essence of the market lies in liquidity, and as we mentioned in previous articles: if you don't know where the market's liquidity comes from, then you are the one providing the liquidity.

Currently, people’s fantasies can be roughly divided into several categories, such as:

• Fantasy that the Federal Reserve can cut interest rates soon, bringing more liquidity to the market, thereby facilitating the arrival of a comprehensive altcoin season.

• The king of fantasy altcoins, Ethereum, quickly breaks through its historical high in price performance, triggering a new round of comprehensive altcoin season.

But there is another problem that needs to be faced: have you made the worst-case plan (i.e., set a Plan B for yourself)? That is, if the Federal Reserve lowers interest rates as expected this year, and ETH also breaks its historical high this year, but the market still does not welcome the kind of all-encompassing altcoin season you are looking forward to, and your heavily invested altcoins still cannot break even or make money, what will you do then?

Take the issue of interest rate cuts, for example. Recently, I've seen quite a few statements shouting: interest rate cuts = bull market. Strictly speaking, I believe this statement is open to debate.

Through the Federal Reserve observation tool, we can see that currently, the probability of a rate cut to 3.5%-3.75% this year is 51%. As shown in the figure below.

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In other words, it seems that there is still some distance from the market neutral rate of 3%–3.5%, and this result should not be considered an optimistic signal, as interest rate cuts may not directly lead to a new bull market arriving immediately.

In the article on March 2, we also mentioned the topic of interest rate cuts: since last year (2024), the market has been focused on expectations related to interest rate cuts. To be honest, at this stage, the cryptocurrency market itself is at most just a small market. We will absorb the liquidity spilled over from stock and other financial markets due to interest rate cuts, but don't expect too much liquidity to flood into the cryptocurrency market first.

In the article on March 16, we continue to elaborate on the topic of interest rate cuts: During the last bull market, it was precisely due to the extreme interest rate cuts in 2020, the extremely low borrowing costs, and the larger scale of liquidity that a new round of bull market was nurtured. However, if we look back at the historical price trends, we can also find that the effects of interest rate cuts at that time did not immediately manifest in the cryptocurrency market; the big bull market did not erupt until 2021. At the current stage, the cryptocurrency market mainly enjoys "excess liquidity," meaning that the large-scale liquidity brought about by interest rate cuts first flows into traditional markets such as the US stock market, and only then does the excess liquidity flow into the cryptocurrency market, which is a secondary high-risk market. However, this situation will gradually change, as more and more large institutions have begun to deeply participate in the cryptocurrency market in recent years. The cryptocurrency market has increasingly synchronized with the US stock market, and once the market has large-scale liquidity, it is possible that some funds may choose to flow into the cryptocurrency market in advance.

At that time, we also mentioned in the article: the rate cut in 2020 is different from the rate cut in 2025. Aside from the difference in the initial interest rates, the biggest difference is the speed of the rate cuts. The speed and magnitude of the previous round of rate cuts were relatively large, while the current round (2025) seems to be a slow and gradual process. Therefore, for the current stage of the cryptocurrency market, it may continue to be a gradual market.

In addition, in the article on April 14, we mentioned the topic of interest rate cuts again and noted: do not simply assume that as long as the Federal Reserve cuts rates, the market will keep rising; the relationship between interest rate cuts and market rises is not as simple as we imagine. For example, once the market clarifies expectations for rate cuts, even if the cuts have not officially taken place, there is a high probability that the market will experience a wave of speculative rises in the short term. Furthermore, when the official interest rate cut arrives, although the policy is easing, the market may also experience a new round of declines or pullbacks early on after the rate cut. While interest rate cuts are certainly positive for the market, do not equate interest rate cuts directly with price increases, as the market is always dynamic and volatile.

Many people tend to look at issues from a singular perspective. They hope that the Federal Reserve can lower interest rates soon, as lowering rates would bring new liquidity, which in turn could drive up the prices of risk assets. However, looking at it from another angle, an increased probability of rate cuts also implies that the economic situation in the U.S. (and even globally) is becoming more severe. For those who pay attention to macro data, it is evident that the current employment data in the U.S. is not optimistic, the real estate market is struggling, PMI is below the expansion-contraction line (50), and the fiscal deficit continues to widen... These data and phenomena all indicate signs of economic contraction.

If we combine the market trends with these macro situations, it can be said without exaggeration that this is the important reason for the recent market fluctuations. However, these situations currently seem unlikely to change in the short term.

Of course, it is precisely because the market is volatile and there are various uncertain factors that some special demands or speculation can still lead to a rise in asset prices in the short term. For example, recently some listed companies have started to frantically hoard and reserve ETH, which directly contributed to a rapid rebound in ETH prices. However, for the market, in the long run, if there are no significant changes in the macroeconomic environment, the overall market may still remain in a relatively chaotic state of volatility, making it difficult for us to directly usher in a comprehensive and universal bull market (the kind of crazy bull market that people ideally envision).

In summary, for risk assets, a rate cut is indeed something people should look forward to, as it means more liquidity. However, we should not be overly optimistic just because we will see a rate cut coming. It is important to understand that a rate cut itself is merely a key condition that catalyzes the price increase of some risk assets, not the result. From a long-term perspective, the market will not continue to rise simply due to a direct rate cut; rather, it should begin to see sustained increases as signs of economic recovery emerge.

The interest rate cut is due to the worsening economic situation, not an improvement. In the short term, the market may cheer and experience a temporary surge because of the rate cut, and smart money may also take advantage of the rate cut for short-term speculation, pushing up the prices of certain assets. However, in the long run, smart money will definitely not take excessive risks. A rate cut is not just a blessing for rising markets; it can also be a warning bell. If the rate cut is a sign of a further deteriorating economic situation, then this issue may be more serious than it appears on the surface.

Therefore, we must maintain calm thinking. In addition to steadfastly holding BTC, we should also try to keep a sufficient proportion of liquidity (cash/U) positions for ourselves.

Let's talk about these for today. The sources for the images/data mentioned in the main text have been supplemented and backed up in the discussion group. The above content is just personal opinions and analysis, only for learning records and communication purposes, and does not constitute any investment advice.

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