Looking back at the interest rate cut cycle in 2019, is Bitcoin’s return to $60,000 the beginning of a bull market?

Original | Odaily Planet Daily ( @OdailyChina )

Author｜Nan Zhi ( @Assassin_Malvo )

Three days ago, after a sharp drop to the price of 55,500 USDT, BTC began to rebound sharply and led the overall market to rise.

OKX market shows that BTCs highest price today reached 60644 USDT, a 24-hour increase of 4.1%. The largest recent increase occurred at 23:00 yesterday, from 58450 USDT to 59660 USDT, a 1-hour increase of 2.06%; ETHs highest price today reached 2466 USDT, a 24-hour increase of 3.2%; SOLs highest price today reached 139.8 USDT, a 24-hour increase of 3.4%; BNBs highest price today reached 560 USDT, a 24-hour increase of 2.3%.

It can be seen that BTC still occupies a dominant position, and its growth rate is ahead of other mainstream currencies. The total market value of cryptocurrencies has also increased during the same period. According to Coingecko data, the total market value of cryptocurrencies has risen to 2.2 trillion US dollars, with a 24-hour increase of 2.26%. The entire crypto market is still dominated by Bitcoin.

In terms of derivatives trading, Coinglass data shows that in the past 24 hours, the entire network has been liquidated for $128 million , most of which are short orders, amounting to $102 million. In terms of currencies, BTC liquidated $54.26 million and ETH liquidated $29.17 million.

Rate cut expectations reversed again

CME Federal Reserve Watch data showed that the probability of the Federal Reserve cutting interest rates by 25 basis points and 50 basis points in September was 50% each ; while a day ago, the probability of the Federal Reserve cutting interest rates by 50 basis points in September was only 28%.

According to Jinshi, the CPI and PPI data released this week supported expectations for a modest PCE data at the end of this month, leading some investors to expect the Fed to be more concerned about employment. Meanwhile, the Wall Street Journal reported that officials are considering more aggressive monetary easing as they believe inflation is under control and are concerned about employment. The 10-year U.S. Treasury bond traded around 3.657%, and the 2-year U.S. Treasury bond was 3.598%.

However, according to statistics conducted by Odaily three days ago , the majority of institutions and economists still believe that the interest rate will be cut by 25 basis points, and some institutions believe that a 50 basis point interest rate cut means increased economic concerns or lagging behind in responding to the impending economic slowdown, rather than reassuring people that decision makers are taking timely action to avoid a recession .

However, Fed Chairman Goolsbee has pointed out that the outcome of the next meeting itself is not the most important (a 25 or 50 basis point rate cut), but the path of rate cuts in the coming months is more important .

Review of the 2019 interest rate cut cycle

History does not simply repeat itself, but it often rhymes. The interest rate cuts that began in 2019 were the only interest rate cut cycle that the crypto market has experienced. How did the market perform at that time? What are the current changes in the external environment compared to the crypto market data?

The 2019 rate cut took place on July 31, and the 2024 rate cut will take place at 2 a.m. on Thursday, September 19. The trend charts for the three months before and one month after the rate cut are shown below, with the horizontal axis 0 being the day of the rate cut:

It is obvious that in 2019, Bitcoin digested the expectation of interest rate cut in advance, and rose by 142% in the three months before the rate cut and hit the highest point of the year at 13,000 USDT; after the rate cut, the positive impact was realized, and it rose for a short period of time before starting to fall. (Odaily Note: The short-term low point was at the end of December 2019, and the ultimate low point was 312, which is not shown in the figure)

In 2024, due to the Bitcoin spot ETF, the rise was completed earlier, but it also showed the characteristics of repeated wide fluctuations before the interest rate cut, and the high point continued to decline.

Macro and Crypto Market Data

Odaily compared the macro and crypto market data before the two rate cuts:

• Federal Funds Rate: This is the interest rate decided by the Federal Reserve. When the market expects interest rates to fall, the cost of capital decreases, and investors may be more inclined to invest in risky assets (such as Bitcoin).

• Core CPI monthly rate: measures inflation. High inflation often drives investors to look for inflation-resistant assets such as gold or Bitcoin.

• US Dollar Index: Bitcoin and the US dollar show a certain negative correlation. When the US dollar strengthens, Bitcoin will usually weaken, and vice versa. Especially when global liquidity is loose, the depreciation of the US dollar will usually drive up the prices of digital assets such as Bitcoin.

• Non-farm payrolls: Strong non-farm payrolls usually push up the dollar exchange rate, while Bitcoin and the dollar often perform in opposite directions. When the dollar strengthens, investors may prefer traditional assets, causing pressure on Bitcoin prices.

• Long-short ratio: Since the interface between Binance and OKX only supports querying data within 180 days at most, the long-short data of the OKEx Bitcoin contract elite account reported by Odaily on July 23, 2019 is used here. In order to maintain consistency, the same type of data is retrieved on the OKX interface.

• Fear Index: Provided by Alternative , comparing the panic data of the 5 days before the rate cut year-on-year.

From the comparison of the above data, it can be seen that the external macroeconomic conditions are quite different from those in 2019, while the confidence in the market is relatively similar .

In 2019, the global economic growth slowed down, especially due to the impact of the Sino-US trade war. The Federal Reserve was worried about the lack of economic growth momentum. At this time, the inflation pressure in the United States was mild, which gave the Federal Reserve more room to stimulate the economy by cutting interest rates. The market expected a rate cut at the time to cope with the potential risk of economic downturn and maintain economic expansion, and tended to take an active approach to rate cuts .

Recent data show that the US employment is weak but the inflation pressure is relatively mild. Non-farm payrolls growth is lower than expected, the unemployment rate has risen for four consecutive months, and the manufacturing PMI has fallen sharply. These signs indicate that the US economy is at risk of recession and tends to be passive in cutting interest rates .

Odaily previously analyzed in Summarizing the 35-year U.S. interest rate cycle, can the interest rate cut in 36 days start the second round of Bitcoin bull market? that only active interest rate cuts will cause the U.S. stock market to rise , while passive interest rate cuts will cause the U.S. stock market to experience a long period of decline. At present, it is generally believed that the overall trend of Bitcoin and the encryption market follows the fluctuations of the U.S. stock market. Therefore, from a macro perspective, it cannot be considered that the market has turned bullish for the time being.