SuperEx丨Performance of major global assets after the US rate cut

#US #Crypto #SuperEx

In September 2024, the U.S. Federal Reserve officially announced its first interest rate cut since the 2022 rate hike cycle, signaling a new phase in U.S. monetary policy. This shift triggered widespread reactions across global markets, with interest rate-sensitive asset classes showing particularly notable movements.

This article will provide an in-depth analysis of the performance of major global assets following the interest rate cut, focusing primarily on cryptocurrencies and secondarily on traditional financial assets.

Reactions in the Cryptocurrency Market

1.1 Bitcoin: The Resurgence of a Safe-Haven Asset

Bitcoin, often referred to as “digital gold,” saw a surge in performance following the Federal Reserve’s rate cut announcement. Historically, gold has been viewed as a safe-haven asset during economic downturns, and Bitcoin has similarly attracted significant capital inflows in times of market uncertainty. In the two weeks following the September rate cut, Bitcoin’s price surged by 12%, reaching its highest level in months. This not only reflected market expectations of a weakening U.S. dollar but also demonstrated investors’ growing recognition of Bitcoin’s safe-haven attributes.

1.2 Ethereum: The Rise and Expansion of the DeFi Ecosystem

Ethereum, the leader in smart contracts, also benefited from the rate cut. As borrowing costs decreased, the DeFi (decentralized finance) ecosystem saw further expansion. Many projects and protocols took advantage of this opportunity to introduce new financial tools, attracting more users to participate. Ethereum’s on-chain activity spiked, with transaction volumes and smart contract calls hitting new highs. Following the September rate cut, Ethereum’s price increased by 9%, reflecting the market’s optimism toward DeFi innovation.

1.3 Increased Demand for Stablecoins

In the context of global interest rate cuts, the demand for stablecoins has significantly increased. Many investors began converting traditional assets into dollar-backed stablecoins, such as USDT and USDC, to hedge against the risk of local currency devaluation. The Federal Reserve’s rate cut further weakened the appeal of the U.S. dollar, driving global markets’ reliance on stablecoins. This surge in demand was particularly pronounced in developing countries, where stablecoins offered a relatively safe haven for those looking to shield themselves from local currency volatility.

1.4 Altcoins: Revival of Speculative Activity

Interest rate cuts typically encourage risk investments, and the altcoin market was no exception. As market liquidity increased, many investors began turning their attention back to highly volatile altcoins. Tokens like Solana and Avalanche, which shone during the previous bull market, saw price increases once again. Although these assets remain highly volatile, speculative capital quickly flowed back into these tokens in the wake of heightened market enthusiasm, driving short-term price spikes.

Performance of Traditional Financial Assets

2.1 Stock Market: Technology Stocks Lead the Rally

Interest rate cuts had a positive impact on the stock market, particularly technology stocks. With borrowing costs decreasing, tech companies were able to secure funds for research and expansion at lower costs. The Nasdaq, representing technology stocks, rose by 4% after the rate cut announcement. Giants like Apple and Microsoft performed especially well, benefiting not only from the rate cut but also from their extensive global presence, allowing them to quickly adapt to macroeconomic policy changes.

2.2 Bond Market: Yield Decline

Interest rate cuts had a significant impact on the bond market. As rates decreased, bond yields generally fell, with long-term government bond yields showing a notable decline. This trend drove many investors to shift towards riskier asset classes, such as equities and cryptocurrencies. However, some investors still opted to buy bonds as a safe-haven tool, particularly amid increasing global economic uncertainty.

2.3 Foreign Exchange Market: U.S. Dollar Weakens

Following the rate cut, the U.S. dollar index weakened. As the Federal Reserve implemented a loose monetary policy, the dollar depreciated against other major currencies, particularly the euro and the yen. This trend reduced the attractiveness of dollar-denominated assets, prompting investors to move their funds into other currencies or risk assets. Globally, many emerging market currencies benefited from the weaker dollar, with some experiencing relative stability or even appreciation in their exchange rates.

Conclusion: Future Outlook

The Federal Reserve’s interest rate cut not only impacted the short-term performance of major global assets but could also have far-reaching effects on the future economic trajectory. The cryptocurrency market benefited from increased liquidity, with leading assets like Bitcoin and Ethereum standing out. Traditional financial markets, on the other hand, thrived in a more relaxed funding environment, with tech stocks and bonds each demonstrating their respective strengths. However, as global economic uncertainty intensifies, investors should remain vigilant and be ready to adjust their asset allocation to navigate potential risks.