Interest rate cut is imminent: liquidity explosion

Recently, according to CME's "Fed Watch": The probability of the Fed cutting 25 basis points by November is 99.7%, the probability of maintaining the current interest rate unchanged is 0%, and the probability of cutting interest rates by 50 basis points is 0.3%. The probability of maintaining the current interest rate unchanged by December is 0%, the probability of a cumulative interest rate cut of 25 basis points is 19.5%, and the probability of a cumulative interest rate cut of 50 basis points is 80.3%.

Before the release of the non-agricultural data, the probability of the Fed cutting 25 basis points by November was 93.1%, and the probability of maintaining the current interest rate unchanged was 6.9%. The probability of maintaining the current interest rate unchanged by December is 5.2%, and the probability of a cumulative interest rate cut of 25 basis points is 94.8%.

It is well known that interest rate cuts will likely lead to another burst of liquidity, pushing up the price of US dollar assets.

In addition, according to Cointelegraph analysis, the US spot Bitcoin ETF is expected to purchase its 1 millionth Bitcoin as early as this week as traders are preparing for possible positive factors for cryptocurrencies in November. These positive factors include the US election, the Federal Reserve's possible interest rate cuts, and Russia's lifting of the ban on Bitcoin mining - all of which occurred in November.

According to Apollo and SoSoValue data, US spot Bitcoin ETF issuers currently hold 976,893 Bitcoins, worth more than $66.2 billion, accounting for almost 5% of Bitcoin's $1.34 trillion market value. Spot Bitcoin ETFs need to receive $1.55 billion in net inflows (i.e., purchase an additional 23,107 Bitcoins) to reach this milestone.

But Henrik Andersson, chief investment officer at Apollo Capital, believes that the "biggest determining factor" in whether the crypto market will rise is Trump's victory: "If he does win, we think the momentum of risky assets could push Bitcoin to $100,000 by the end of the year."

And QCP Capital, a crypto investment institution in Singapore, said in a post that it is only two weeks away from the US election and is currently attracting much attention. In the prediction market, Trump has begun to expand his lead over Harris, and current polls in key swing states are also leaning towards the Republican Party.

The market is currently pricing in Trump's possible election as president. Talk of tariffs and tax cuts has led to a stronger dollar and higher U.S. Treasury yields. Given Trump's more friendly stance on cryptocurrencies, it is not surprising that Bitcoin is trading higher.

The Financial Times team recently updated its forecast for the Fed's interest rate outlook, predicting that if Harris wins, the Fed may quickly cut interest rates next year. Analysts said that following the 50 basis point rate cut in September, the Fed may cut interest rates twice more in 2024 at a pace of 25 basis points. The Fed will cut interest rates by a total of 100 basis points by the end of this year, bringing the funds rate to 4.25-4.5%. This is consistent with the Fed's September economic forecast summary.

Recently, the Bank of Canada cut interest rates by 50 basis points on Wednesday, lowering the benchmark rate from 4.25% to 3.75%, the largest reduction in borrowing costs since the early days of the epidemic in March 2020.

The Bank of Canada said this was a sign that the country was returning to an era of low inflation. In response to soaring prices, the Bank of Canada had previously raised interest rates to a 20-year high, but has cut interest rates four times in a row since June. Inflation fell to 1.6% in September, below the target of 2%.

The ECB also cut its deposit facility rate from 3.5% to 3.25%, in line with market expectations. At the same time, it adjusted the main refinancing rate and marginal lending rate from 3.65% and 3.9% to 3.4% and 3.65%, respectively.

Not only that, Citigroup economist Jin-Wook Kim said in a report that the Bank of Korea may cut interest rates faster and more sharply to respond to weaker-than-expected economic growth. Kim said that it is expected that the Bank of Korea may cut interest rates by 25 basis points in January, April and July 2025 respectively.

Previously, the Bank of Korea lowered its benchmark interest rate from 3.50% to 3.25% on October 11, starting its loose monetary policy. He noted that the central bank could cut rates twice more in 2026 - possibly in January and July - to bring the policy rate down to 2.00%, below Citi's previous forecast of 2.50%.

The Fed's continued rate cuts will inject more funds into global liquidity and benefit risky assets. Cryptocurrencies have seen a significant improvement in market sentiment as liquidity continues to increase.