Is there any historic opportunity for Bitcoin to cut interest rates?

The Fed cut interest rates this morning. President Trump said that he was very dissatisfied. He immediately fired on Twitter and spearheaded not enough. According to his usual radical style, the 25 base points in the district, such as the itching of the boots, should be greatly reduced.

Dodo believes that this monetary easing policy is the first time in 10 years and 7 months after the financial crisis, but it is still a defensive rate cut, not a lag-type interest rate cut after the overall deterioration of the economy, because the current US economy is There was no obvious recession.

Whether the global money bag is fully open or not, there is no historic opportunity for bitcoin. The key lies in the follow-up trend of the US economy and whether China will follow the attitude of cutting interest rates.

However, as the financial leader, the Fed’s restart of interest rate cuts after 10 years is still a major signal. I believe that the Fed has also undergone full game and inference before making this resolution.

Bitcoin, born after the financial crisis, is indeed likely to usher in the first rate cut cycle in life. The currency circle was thrown to a new proposition without reference to history.

Rate cuts have never been isolated incidents.

So, will this be a Pandora's Box or a Moonlight Box?

1

Neglected signal

Everyone knows that the long-term lower-than-expected inflation rate has triggered the Fed's vigilance. In order to avoid the economic recession, the FOMC announced a rate cut of 25 basis points after the FOMC meeting, and lowered the federal funds rate target range to 2%-2.25%.

The rate cut this time is actually very mild, lower than market expectations, and is considered to be a mistake to fix the interest rate hike at the end of last year.

Therefore, after the Federal Reserve announced the interest rate decision, the US stocks that should have risen sharply fell. The three major stock indexes all fell more than 1%. The US dollar did not fall and rose, and the gold price dipped uncharacteristically.

So, why dodos say that this rate cut is still quite worthy of the currency circle?

Because although the attitude of Fed Chairman Powell is still relatively embarrassing, he does not deny that "the next will continue to cut interest rates", and it is not certain that "enter a round of easing cycle", but another information in this interest rate cut has been ignored by many people. : The Fed announced the early termination of the contract reduction plan on August 1.

Ending the contraction and superimposing interest rate cuts is actually biased towards releasing the signal of continued easing in the future. Because interest rates are the main currency tool for the Fed, the role of the balance sheet cannot be ignored.

Previously, bankers analyzed that the Fed’s loose monetary policy has two possibilities: one is to cut interest rates, and the other is to stop shrinking. Now that the boots are on the ground, the Fed has chosen the third possibility, a two-pronged approach.

In the United States, the Fed’s contraction means that the dollar in the market is recovered, and the funds are tight; on the contrary, the expansion of the table means that the dollar is released to the market and the money bag is opened.

The early termination of the contract has exceeded the expectations of many investment banks. For example, the mainstream investment bank Goldman Sachs has insisted that the Fed will end its contraction in 2020. Jonathan Cohn, head of interest rate strategy at Credit Suisse, also announced immediately that the Fed’s decision to cut interest rates by 25 basis points was basically in line with expectations, but it was surprising to end the contraction early.

More importantly, the minutes of the Fed’s interest rate meeting in January 2019 showed that almost all officials hoped to announce the plan to stop the contraction within the year, now several months in advance.

In the case of a reduction in the table, it is possible to see that the Fed’s attitude toward a loose test has avoided a one-time rate cut that is too large and causes a violent shock. At present, many bankers believe that the United States may soon switch to restarting the expansion.

Once the table is expanded, the Fed’s way of expanding the table is to buy the US dollar bonds and MBS (a kind of bond about the house) by printing the US dollar. In the process, the Fed’s assets have increased because it bought a lot. National debt, MBS assets. The dollar in the market has also increased, which is equivalent to the Fed directly driving the printing machine.

If the table is really restarted, the market will receive a more clear expectation of continuous easing, rather than a slight moderate fine-tuning, which not only means that the dollar will continue to be under pressure for some time to come, but also for Bitcoin. A new opportunity.

However, the current FOMC voting committee's discussion on the path of future interest rate cuts is still in the midst of hard work and needs to pay close attention to the dynamics.

2

What will happen

The interest rate cut is definitely good for Bitcoin, but it is possible to usher in a new history and to judge the future economic environment.

The first thing to look at is whether the United States will cut interest rates continuously. According to the historical law, once the Fed begins to cut interest rates, it will generally not only drop once.

The most extreme example is the last US interest rate cut from the subprime mortgage crisis, which opened in September 2007 and ended in December 2008. During the period, the Federal Reserve cut interest rates 10 times and cut the federal benchmark interest rate from 5.25% to zero interest rate. Level.

The current rate cut is still the area of ​​expected management. The Dodo feels that there is a high probability that the rate will be cut again 1-2 times during the year. As for 2020, if the global economic recession does not decrease and the US economy shows signs of recession, then continuing to cut interest rates (or other means of regulating currencies) is a high probability event.

By then, Bitcoin will see a significant increase.

It is worth noting that the downside risks of the US economy are indeed accumulating.

For example, in the second quarter of this year, the annual growth rate of the US economy was 2.1%, which was higher than expected, but far lower than the growth rate of 3.1% in the first quarter. In addition, corporate investment and household consumption growth in the United States is not satisfactory. The continued growth of foreign debt has become a sword hanging over the US government.

But the Dodo thinks that the US economy is generally relatively healthy. No signs of recession have emerged from the perspective of employment or inflation, so there is no reason for the Fed to open a loose cycle due to the risk of recession.

For this reason, at the Fed meeting on interest rates, there were Kansas City Fed President and Boston Fed President who voted against it and thought that there should be no interest rate cuts.

Therefore, interest rate cuts deserve full attention, but they also need to wait and see, rather than impulsive investment.

The second is the radiant rate cut. There is no doubt that the world is currently in a loose monetary environment.

Like the Fed’s “call to power” in the past, this global follow-up easing policy is also grounded. Just after the current Fed announced interest rate cuts, the Brazilian central bank followed the announcement of a 50 basis point rate cut. In the previous market forecast, the interest rate cut was 25 basis points.

The three Middle Eastern countries, the United Arab Emirates, Bahrain and Saudi Arabia, have taken the lead in following the Fed’s interest rate cut by 25 basis points.

Since this year, more than 20 central banks have chosen to cut interest rates. The Bank of India announced a cut in the benchmark interest rate by 25 basis points to 6.25%. In just 4 months, the Bank of India has cut interest rates three times in a row.

The New Zealand Federal Reserve has implemented the first interest rate cut since November 2016, which has opened the curtain for the interest rate cuts in developed countries. On June 4, the Reserve Bank of Australia announced a 25 basis point rate cut, the first rate cut in the past three years, and the benchmark interest rate was directly reduced to a historical low.

The next interest rate hike was on July 18, when four central banks announced interest rate cuts. South Korea, Indonesia and South Africa cut interest rates by 25 basis points, and Ukraine cut the main interest rate to 17%.

The Turkish Central Bank and the Russian Central Bank also followed suit in a few days.

Since Bitcoin and other mainstream digital currencies are global markets, one important fact that the currency circle needs to know is that the world is printing money simultaneously. This is a trend that is difficult to subvert.

3

Large currency forecast

If the easing continues, the hot money in the market will definitely increase. Generally speaking, the major countries in the world will cut interest rates, and emerging markets will benefit, because investors will return to some relatively high yields, and the economy is relatively stable or declining. There are no obvious areas.

Well, this will also be a positive for digital currency investments that have been adopted by many as one of the asset allocation options.

For any financial system, there is only one essential problem – the flow of money. The crazy rise in digital currency in 2016-2017 is essentially a market that has been driven by Asia, especially China. It is a typical hot money-driven market.

In 2015, China's electricity consumption and railway traffic volume data fell sharply, revealing the real situation of the real economy; and the infrastructure and real estate frenzy brought about by the big easing in 2009 has gradually subsided.

Beginning in the second half of 2015, it has undergone strict capital outflow control. At that time, the digital currency of "the extraterritorial land" entered the vision of capital.

The long-term bear market, on the surface, is closely related to the tightening monetary policy of the US dollar interest rate hike and China's financial deleveraging.

When the tight signal is transmitted to the market, hot money begins to shrink. When the digital currency entered the crash, it was expected.

Nowadays, the return to easing is sure to boost the price of digital currency, but the extent of it depends on the duration and intensity of this loose period. Dodo believes that when China will follow up to cut interest rates, it will be a stronger signal.

The second dimension is whether the dollar depreciates. The current view is more differentiated. Li Chao, a macro research analyst at Huatai Securities, said that the gold trend combined with the historical law of the US dollar cycle, the dollar is expected to gradually enter a 7 to 10 year depreciation cycle.

There are also views that if the Fed believes that a defensive interest rate cut is enough, and this rate cut has been completely digested by the market, then the dollar will continue to rise.

A lower dollar will be a big plus for Bitcoin. More than the US dollar, the depreciation of the French currency will make the market aware of the deflationary expectations of Bitcoin has irreplaceable significance. However, the trend of the US dollar needs further observation to get a rational verification.

Source: District 45

The original title is: About the interest rate cut, what you must know as a currency person

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