Last week, the global market was shocked by the violent fluctuations in the US stock market. After the "peer tariff" message triggered a market crash, the White House announced a 90-day tariff suspension for certain countries, and the market quickly reversed and soared. The Dow Jones Industrial Average surged by over 2,900 points, with a 7.87% increase, marking the largest single-day gain since March 25, 2020. The S&P 500 rose by 9.52%, the largest increase since October 29, 2008, while the Nasdaq index skyrocketed by 12.16%, recording its second-largest single-day gain in history.
The "Seven Giants" tech stocks surged across the board, with their total market value increasing by $1.85 trillion in just a few hours.
"The US stock market is as volatile as an Altcoin, and the world has become a massive pump and dump game."
This rhythm seems familiar - it's exactly what we often see in the Altcoin market. Many market analysts couldn't help but exclaim:
However, the surprises from the US did not stop there. The March CPI data was far below expectations: the year-on-year increase was only 2.4%, lower than market predictions, and even decreased by 0.1% month-on-month. The core CPI was equally disappointing, reaching a four-year low. The unadjusted core CPI year-on-year increase in March was 2.8%, declining for the second consecutive month, reaching the lowest level since March 2021, lower than the market's expected 3.0%.
These two sets of data not only surprised the market but also prompted investors to reassess the Federal Reserve's policy outlook. The market responded quickly:
Spot gold initially rose by $6, then fell back;
The US dollar index dropped by 20 points in the short term;
The pound sterling's daily gain against the US dollar expanded to 1.00%.
Facing such data, many market analysts now believe that a Fed rate cut in June is almost a certainty.
Harriet Torry, an economist at The Wall Street Journal, pointed out that under normal circumstances, a slowdown in year-on-year CPI growth would be seen as positive news. This is naturally good news for the crypto market. As the Fed's benchmark interest rate falls, the crypto market may be ushering in a new round of value reassessment.
Relative Pricing Effect of Low Risk-Free Rates
The US 10-year Treasury yield has dropped from the 2023 high of 4.8% to 4.28% (the recent low point was 4.18%, then rebounded by 10 basis points). The decline in traditional fixed-income asset returns is driving capital towards high-risk assets.
Taking Bitcoin as an example, its correlation with Treasury yields was as low as -0.73 in 2023. During the rate-cutting cycle, the opportunity cost of holding crypto assets significantly decreases, thereby enhancing their attractiveness. According to the Goldman Sachs model, for every 25 basis point rate cut, Bitcoin's market value could rise by 6-8%.
Strengthening the 'Digital Gold' Narrative
Bitcoin's 90-day correlation with gold rose from 0.12 in 2023 to 0.35, reaching 0.68 during the Silicon Valley Bank crisis. When interest rate cuts and recession risks rise simultaneously, the hedging value of crypto assets may be reevaluated. A Grayscale report indicates that for every 1% decrease in real interest rates, Bitcoin's valuation baseline could increase by 15%.
Liquidity Injection from Interest Rate Cuts
Historically, the Federal Reserve's rate-cutting cycles have often been accompanied by widespread asset price increases. As liquidity loosens and capital costs decrease, investors' interest in risk assets increases - this is particularly evident in the crypto market.
As a high-volatility, high-risk tool, crypto assets are extremely sensitive to liquidity changes. When the US Federal Reserve releases monetary easing signals, idle capital tends to chase higher returns, and crypto assets with high return potential quickly become the focus.
Economic Logic of Deflationary Tokens
Against the backdrop of expected legal tender depreciation, the scarcity premium of fixed-supply cryptocurrencies becomes increasingly prominent. This built-in deflationary characteristic enhances anti-inflation appeal during interest rate reduction cycles.
Catalysts for Institutional Adoption
Interest Rate Cuts Amplify "Asset Scarcity" Phenomenon
Lower interest rates reduce yields in traditional financial markets (such as bonds and money market funds), creating pressure for institutional reallocation. Long-term investors like insurance companies, pension funds, and family offices may redirect part of their capital towards growth-oriented emerging markets.
With steady maturation of regulatory infrastructure like ETFs, custody, and audits, crypto assets are becoming increasingly viable for compliant investment. In an environment of low traditional market returns, institutions may incorporate Bitcoin and Ethereum into diversified portfolios.
Crypto ETFs Synchronized with Interest Rate Reduction Cycle
By the end of 2024, the US approved multiple spot Bitcoin ETF listings, marking a key moment for institutional funds to publicly enter the crypto market. If interest rate cuts synchronize with the ETF boom, the dual momentum of institutional inflows and macroeconomic liquidity expansion could further amplify the crypto market's upside potential.
On-Chain Activity Revival in Crypto Ecosystem
DeFi Market Recovery
During the interest rate hike cycle, DeFi platforms struggled to compete with low-risk returns from US Treasury bonds, leading to a decline in Total Value Locked (TVL). As risk-free yields decrease, DeFi returns become attractive again, drawing capital back.
Leading protocols like Compound, Aave, and Lido have shown signs of TVL recovery. With stabilizing on-chain lending rates and expanding stablecoin interest spreads, capital efficiency improves - enhancing liquidity in the DeFi ecosystem.
NFT and GameFi Markets Regain Attention
Interest rate cuts release capital, reigniting user enthusiasm for high-volatility, high-engagement assets like Non-Fungible Tokens and GameFi Tokens. Historically, NFT market activity typically lags behind Bitcoin's rise and erupts in the second stage of major bull markets. US Federal Reserve interest rate cuts may open new upside spaces for these application-layer assets.
Summary
In conclusion, the US Federal Reserve's interest rate cuts establish a macroeconomic foundation for a new crypto market upward cycle. From liquidity injection and capital reallocation to institutional entry, on-chain activity, and financing environment - interest rate cuts provide systemic tailwinds for the crypto industry.
As the US Federal Reserve opens the liquidity gates, crypto assets are evolving from marginal speculative assets to mainstream macroeconomic allocation tools. This transformation is driven by traditional financial giants and technological breakthroughs, accompanied by market depth reshuffling and value reconstruction.
Of course, the market will not transform overnight. Regulatory transparency, technological infrastructure, and security challenges still need to be addressed. However, driven by the dual engines of "monetary easing + asset innovation", the crypto market may welcome a new structural rise in the coming year. For investors and builders, understanding policy cycles and market rhythms will be key to navigating bull and bear markets.
