Interest rate cut = Bull market?

Source: Talking about Li and Talking about the Outside

Time is the fairest 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 3), we published a topical 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 image below. Press enter or click to view image in full size

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

In theory, it can be said that, but buying Bitcoin ten years ago and holding 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 an expression of emotion

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

Especially in investment, one should never harbor any luck mentality, thinking that they can always outsmart the market with their intelligence and talent. The market actually does not care how smart you are; after all, the market is just an expression of emotion. Only when we try to overcome our emotions and can reasonably hedge against our reckless behavior do 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 experience, I believe that waiting for opportunities is a good thing because the market provides us with compounded opportunities, which can continuously accumulate and generate exponential growth.

For example, take Bitcoin: as long as we can make good use of the advantages and patterns of cycles, identify the extreme situations in the market, remain calm, and patiently wait for some opportunities, avoid frequent trading, and refrain from casually leveraging, we are likely to achieve good results after several cycles. Press enter or click to view image in full size

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

I remember that in the first two years after entering this field, I, like most newcomers, often liked to stare at the exchange backend and wallet balances, focusing on the changes in trading profits (floating income). The result was that I often emotionally leaned towards forcing myself to make various trades to earn more income daily, but this brought about restlessness and increasingly irrational trading, and sometimes even losses.

Later, as I began to change my strategy and shifted my focus to accumulating coins, transforming from a frequent swing trader to a cyclical swing trader (with only a handful of trades each year), my mindset gradually improved, and I had more time and energy to engage in new thoughts and summaries.

For me now, regarding trading operations, I don't care if I don't trade for months or if I can't make money, or if my wallet account experiences significant changes (floating losses in USDT) due to market volatility. I believe that this market will continue to rise in the long term. What I value are the opportunities in the next 5, 10, or even 20 years, as long as I maintain my patience.

If one truly understands that the market is just an expression of emotion, 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 at lower prices).

As many people know, Buffett's classic saying goes: "Be fearful when others are greedy, and greedy when others are fearful." The core of Buffett's statement is not just about reverse thinking but also emphasizes the importance of self-emotion control in investing, meaning that investment requires rationality, not following the crowd.

However, the reality is often that while people understand the reasoning, many still do not live well. In terms of investment, perhaps experiencing losses or setbacks is the best teacher. This may also be an interpretation of "suffering is a blessing," so there is no need to fear temporary losses. Experiencing losses early is not necessarily a bad thing, but one should conduct necessary reviews, reflections, and summaries after losses to avoid mindlessly falling into continuous losses and ultimately being ruthlessly eliminated by the market.

Being able to earn 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 truly not far from successfully making money. Conversely, if a person still feels excited about making money from a particular trade, they may make 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 you are the chosen one, capable of defeating the market, or even able to seize overnight wealth opportunities like some reported cases, then you can continue to gamble or play. I won't stop you because I can't, and I have no obligation to do so.

2. Interest Rate Cuts = Bull Market?

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

Many retail investors thought Bitcoin was too expensive at $20,000 in 2023 and wouldn't buy, thought Bitcoin was too expensive at $50,000 in 2024 and wouldn't buy, and similarly, this year they think Bitcoin is too expensive at $80,000 and wouldn't buy. As a result, many have been holding onto a large proportion of altcoins while waiting, and many people's waiting has slowly turned into agony, with their targets shifting from an initial 100x or 10x… to just wanting to break even. These people wander through various KOL comment sections daily, watching KOLs shout that the altcoin season is still ahead, thus continuing to harbor fantasies of making money amidst their agony.

As for the topic of altcoin season, we have discussed it extensively in previous articles, so we won't elaborate further here. We just want to state a basic principle: if the market allows everyone to make money, then where does the money you earn come from?

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

Currently, people's fantasies can be roughly divided into a few types, such as:

• The fantasy that the Federal Reserve will quickly cut interest rates, bringing more liquidity to the market, thus triggering a comprehensive altcoin season.

• The fantasy that the king of altcoins, Ethereum, will quickly break its historical high in price performance, leading to a new round of comprehensive altcoin season.

However, there is another issue 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 cuts interest rates as expected this year, and ETH also breaks its historical high this year, but the market still does not welcome the comprehensive altcoin season you are hoping for, and your heavily invested altcoins still cannot break even or make money, what will you do then?

Take the interest rate cut as an example; recently, I have seen many comments shouting: interest rate cut = bull market. Strictly speaking, I believe this statement is debatable.

Through the Federal Reserve observation tool, we can see that currently, the probability of cutting interest rates to 3.5%-3.75% this year is 51%. As shown in the image below. Press enter or click to view image in full size

In other words, this is still some distance from the market-neutral interest rate of 3%-3.5%, and this result should not be considered an optimistic signal, meaning that an interest rate cut does not necessarily lead to a new bull market immediately.

I remember in the article on March 2, when we discussed the topic of interest rate cuts, we also mentioned that since last year (2024), the market has been paying attention to expectations related to interest rate cuts. But to be honest, at this stage, the crypto market itself is at most a small market. We will absorb liquidity from stock and other financial markets due to interest rate cuts, but don't expect liquidity to flood into the crypto market first.

Later, in the article on March 16, we continued to elaborate on the topic of interest rate cuts: in the last bull market, it was precisely because of the extreme interest rate cuts in 2020, the very low borrowing costs, and larger-scale liquidity that a new bull market was nurtured. However, if we look back at historical price trends, we can also find that the effects of interest rate cuts at that time did not immediately manifest in the crypto market; the bull market did not explode until 2021. At this stage, the crypto market mainly enjoys "excess liquidity," meaning that the large-scale liquidity brought by interest rate cuts will first flow into traditional markets like US stocks, and then the excess liquidity will flow into the crypto market, which is a secondary high-risk market. However, this situation will gradually change because as more large institutions begin to deeply participate in the crypto market in recent years, the crypto market is increasingly synchronized with US stocks. Once the market has large-scale liquidity, some funds may choose to flow into the crypto market in advance.

At that time, we also mentioned in the article that the interest rate cuts in 2020 are different from those in 2025. Besides the difference in starting rates, the biggest difference is the speed of the cuts. The previous round of cuts was relatively fast and large, while the current round (2025) seems likely to be a slow and gradual process. Therefore, for the current crypto market, it may continue to be a gradual trend.

Additionally, in the article on April 14, we mentioned the topic of interest rate cuts again and stated: do not simply think that as long as the Federal Reserve cuts interest 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 the expectations of interest rate cuts, even if the cuts have not officially landed, the market is likely to experience a wave of speculative rises in the short term. Another example is that when the official interest rate cuts arrive, although the policy is to inject liquidity, the market may also experience a new round of declines or pullbacks in the early stages of the cuts. Interest rate cuts are certainly beneficial for the market, but do not equate interest rate cuts with price increases directly, as the market is always dynamic and volatile.

Many people tend to view issues from a single perspective. They hope that the Federal Reserve will quickly cut interest rates because cuts will bring new liquidity, and new liquidity can drive up the prices of risk assets. But from another perspective, if the probability of interest rate cuts rises, it also means that the economic situation in the US (and globally) is becoming more severe. If someone pays attention to macro data, they will know that the current employment data in the US is not optimistic, the real estate market is struggling, PMI is below the growth line (50), and the fiscal deficit continues to expand… These data and phenomena indicate signs of economic contraction.

If we combine the market trends with these macro conditions, it is not an exaggeration to say that these are the important reasons for recent market fluctuations, but it seems that there is little possibility of 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 bring about price increases for some assets in the short term. For example, recently, some listed companies have started to hoard and reserve ETH, directly leading to a rapid rebound in ETH prices. However, for the market, in the long run, if the macroeconomic situation does not change significantly, the overall market may still remain in a relatively chaotic volatile state, making it difficult for us to directly welcome a comprehensive and widespread bull market (the kind of crazy bull market people idealize).

In summary, for risk assets, interest rate cuts are indeed something people should look forward to because cuts mean more liquidity. However, we should not be overly optimistic just because we see the arrival of interest rate cuts. It is important to understand that interest rate cuts are merely a key condition for catalyzing price increases in some risk assets, not the result. From a long-term perspective, the market will not continue to rise simply because of direct interest rate cuts; it should be a sustained rise as signs of economic recovery begin to appear.

Interest rate cuts occur because the economic situation is deteriorating, not improving. In the short term, the market may cheer and experience a temporary climax due to interest rate cuts, and smart money may use cuts for short-term speculation to push up some asset prices. However, in the long run, smart money will certainly not take excessive risks. Interest rate cuts are not just a blessing for rising prices; they can also serve as a warning. If the cuts are a response to a worsening 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/USDT) in our positions.