Fed Keeps Cutting Rates, Why Is the Crypto Market Plummeting?

The Fed has been cutting rates to inject liquidity, which should boost risk assets. But the crypto market has been falling lately. What’s going on?

TL;DR

In the short term, macro headwinds, the October 11th industry black swan, and capital competition from US, South Korea, and China stock markets are pressuring crypto. Long term, the liquidity from the Fed’s ‘preventive rate cuts’ can’t offset selling pressure from new token issuances and unlocks—resulting in a rising total market cap but falling prices for most coins, making retail investors feel like it’s a bear market.

I. Total Market Cap Rises with Liquidity, but Surge in Supply Crushes Prices

Crypto’s total market cap is highly correlated with major risk assets like US stocks over the long term. Over the past year, crypto’s total market cap even outgrew US stocks!

The problem? The ‘supply side’: Too many new tokens were issued, and old projects (launched in 2021-2023) entered their unlock peak (≈$30 billion unlocked in the past three months). The buying pressure from Fed rate cuts simply can’t beat this selling pressure. So total market cap goes up, but most coin prices drop—retail investors feel like it’s a bear market.

II. Short Term: Macro Headwinds Are Blowing Hard

While the long-term trend is still loose monetary policy, short-term troubles include:
– Fiscal side: The US government shutdown has locked up funds in the Treasury General Account (TGA), with its balance near $1 trillion, draining market liquidity.
– Monetary side: Rate cuts are slower than expected, real interest rates remain high, and Powell won’t commit to a December cut, hitting market confidence.
– Geopolitics: US-China tensions (rare earth export restrictions, tariff hikes) have spooked investors, sending money into safe havens and hurting risk assets.

III. Hot Stock Markets Are ‘Stealing’ Crypto’s Funds

Back in the 2021 bull run, US stocks had weak fundamentals due to the pandemic, so money flooded into crypto. Now? US stocks are at all-time highs on AI hype, China’s A-share market broke 4,000 points on policy support, and South Korea’s KOSPI is up nearly 70% this year—these red-hot stock markets are siphoning capital away from crypto.

What to Watch?

• Short term: When the US government reopens and when the Fed ends its balance sheet reduction (December 1)—these could improve liquidity.
• Long term: Will rate cuts speed up? Will stock markets keep ‘stealing’ funds? This will determine if crypto can escape its ‘marginalized’ phase.

Read More《美联储一直降息，为什么加密市场跌跌不休?》

This content is AI-generated and does not constitute investment advice. Please exercise your own rational judgment.

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