Two of BTC's three major benefits have been eliminated, and all that's left is the Fed's roar?

The recent trend of Bitcoin can be said to have gone through two phases of ice and fire:

After the CPI data came out in mid-June, BTC immediately had a big positive line rising from the ground, and the currency price was close to 70,000 US dollars; after Powell’s statement, After the interest rate cut, it fell from close to 70,000 US dollars to below 60,000 US dollars!

Let’s talk about the three major positives for Bitcoin this year:

1. Spot ETFs
2. Bitcoin halving
3. Fed interest rate cut

Two of these three have been achieved.

After the approval of the Bitcoin spot ETF in January, the price of Bitcoin soared from 30,000 to more than 40,000 US dollars.

With the Bitcoin halving in April, the price of Bitcoin broke through the US$60,000 mark again, and has been consolidating between US$60,000 and US$70,000 since then.

So if the last benefit of the Fed’s interest rate cut comes true, how high will Bitcoin reach?

In order to answer this question, our Damei Investment Research Team also conducted a careful research, hoping to answer your doubts.

01. The impact of the last interest rate cut

Listening to the news, it seems that the Federal Reserve is constantly raising and lowering interest rates. In fact, the last time the Federal Reserve cut interest rates was already in 2020. That time, because of the epidemic, the then Fed Chairman lowered U.S. bond interest rates in one step. to 0.

The last time was in the second half of 2019. The time between these two times was only about half a year, which can be regarded as the same cycle.

The interest rate cuts going back further can be traced back to the world financial crisis in 2007-2008. At that time, Bitcoin had not yet been created, so we will start our analysis from the interest rate cut in 2019 and look at the Federal Reserve How powerful is the interest rate?

The first interest rate cut in 2019

The interest rate cut in 2019 started in July and ended in October. We open Coingeico's Bitcoin trend chart and see that the trend of Bitcoin throughout 2019 is like this:

The part framed in red is the interest rate cut cycle.

If the Federal Reserve’s benchmark interest rate is included, it will look like this:

At the beginning of 2019, the price of Bitcoin was US$3,000 to US$4,000, and before the interest rate cut, it had doubled to US$8,000.

As soon as the news of the interest rate cut was announced, the price of Bitcoin reached a high of US$10,000 in July, and then turned around and headed downward.

So judging from this trend, the Fed’s interest rate cut does not seem to be very dramatic.

The second interest rate cut in 2020

Then let’s take a look at the second interest rate cut in 2020. This interest rate cut was completed in March.

On March 3, 2020, the interest rate was first cut by 50 basis points. Then on March 15, the Federal Reserve held another FOMC meeting and lowered the target range of the federal funds rate by 1 percentage point to a range of 0% to 0.25%.

But we saw that the price of Bitcoin was only over 5,000 US dollars at that time, and there was no big rise in response. Instead, it started to rise all the way at the end of the year, and by the end of the year, it exceeded 30,000 US dollars. close.

During this cycle of Bitcoin’s rise, the Fed’s interest rate has been lying on the floor untouched.

02. The relationship between U.S. bond yields and Bitcoin

After looking at the previous two interest rate cuts, it seems that the impact on BTC is not big. Some friends say that U.S. bonds are competitors that directly divert funds. Should we How about pulling out the U.S. bond yields?

It’s not impossible. Our investment research partners opened the official website of the U.S. Department of the Treasury and collected a wave of data:

This should be the most authoritative data, right? We manually pulled a chart of the five-year government bond yield and BTC price:

From the picture we can see that during the 2019 interest rate cut, the government bond yield dropped from 3% to less than 2%, and Bitcoin The price has risen from more than 3,000 to around 10,000 US dollars.

However, as the yield on government bonds fell further, the price of Bitcoin did not rise sharply, but began to respond more than half a year later.

This makes people wonder, does interest really have an impact on the price of Bitcoin? Are there other influencing factors?

03. The relationship between inflation rate and Bitcoin

Our beautiful investment research team has a professional background in finance.

When we analyze macroeconomics, we usually cannot just look at interest rates alone, but also look at them together with the inflation rate, that is, CPI.

We also pulled a five-year CPI, which is the inflation data and BTC price trend chart:

This picture seems a bit interesting. When Bitcoin skyrocketed at the end of 2000, it was exactly when the US CPI skyrocketed.

Some people asked why the 5-year period was selected. In fact, the friends from the investment research team of Dameiliang were also helpless, because there is a lot of data on the official website of the U.S. Department of the Treasury, but only the 5-year period is the most comprehensive, and can be compared horizontally with multiple indicators.

But we can see from the trend chart above that only the five-year data is the most complete

04. The impact of real interest rates

When our investment research partners were analyzing, they found that another data seems to be It better reflects the impact of Bitcoin prices and interest rates.

It is the real interest rate.

What is the real interest rate?

We subtract the inflation rate from the interest rate shown on the U.S. Treasury note to get the real interest rate.

Then let’s take a look at the relationship between the 5-year Treasury real interest rate and Bitcoin:

Kind-eyed friends will find it interesting when looking at this picture:

In the first half of 2019, although The Federal Reserve did not cut interest rates, but because the inflation rate was rising, the real yield on U.S. Treasury bonds fell, and Bitcoin began to rise again. In the second half of 2019, although the Federal Reserve cut interest rates, the inflation rate was also falling at that time, so the real yield remained in the range of 0~0.5%, and the price of Bitcoin was relatively flat.

In 2021, the inflation rate has skyrocketed due to the epidemic, but at the same time, U.S. bond interest rates remain low. As a result, the actual yield on U.S. bonds is a few percent negative. This caused a large amount of money to abandon U.S. debt and look for other anti-inflation alternatives. At this time, the price of Bitcoin naturally ushered in a surge.

Everyone needs to know that not only gold and Bitcoin are anti-inflation, but U.S. bonds themselves are also anti-inflation investments designed by the US emperor.

Let’s look at the cycle after 2022. As the U.S. emperor begins to violently raise interest rates, the actual yield of U.S. debt will turn from negative to positive. At this time, U.S. debt can outperform inflation again, and Bitcoin will also usher in a boom. There was a plunge.

05. Is the scale of U.S. debt unsustainable?

Nowadays, the scale of U.S. debt is getting bigger and bigger. Judging from this trend, how long can the high yield of U.S. debt be maintained?

In the past five years, the size of the U.S. debt has increased from 22 trillion to 34 trillion. Corresponding to the size of the U.S. GDP, it has still been hovering at more than 20 trillion in the past few years

So there are many People believe that the U.S. imperialism cannot allow U.S. debt issuance to be faster than GDP without limit for a long time. Otherwise, in the long run, the taxes collected nationwide by the U.S. may not be enough to repay the interest.

If it comes to this, the only option is to cut interest rates.

The trend of actual U.S. bond yields may then repeat the scene 3 years ago:

06. How much can it rise after interest rates are cut?

Today’s content may be more informative

Da Niali would like to give you a summary of the factors that affect the rise and fall of BTC:

First of all, you can’t just look at the Fed’s interest rate, you have to look at it together with the CPI, which is the inflation rate, so it’s best to The indicator is the actual rate of return.

In general, as long as you think the inflation rate cannot go down, then hold Bitcoin firmly!

Secondly, the scale of U.S. debt cannot be higher than the growth rate of GDP for a long time. It is now extremely large. Just in the past few days, the U.S. government’s expenditure on debt interest has exceeded military expenditure for the first time. Therefore, in the future, U.S. debt will serve as an anti-inflation policy. The status of investment products may be subject to certain challenges. This is a good opportunity for our Bitcoin. Only then will the status of our Bitcoin electronic gold be truly recognized.

Finally, November this year in the United States may be a critical time point in this cycle. On the one hand, the market generally believes that interest rates will begin to be cut before November, and on the other hand, the national debt will also be bipartisan. The central issue in the candidates’ debates.

Once there is a strong commitment to limit the long-term scale of debt, Bitcoin will usher in another bull market~

Before the Federal Reserve raises interest rates in 2021, Bitcoin has actually reached the $60,000 mark.

If you were asked to pat your head and guess a number, if the current inflation rate remains unchanged and the Federal Reserve's interest rate can be reduced to 0, then Bitcoin will definitely double to more than 120,000 US dollars.

But it is still a bit unlikely that the interest rate will reach 0. If the interest rate is reduced by half to a few percent, the price of Bitcoin is estimated to be around 80,000 to 100,000 US dollars.

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