Interest rate cut is imminent: liquidity explosion

Recently, according to CME's "Fed Watch": the probability of the Fed cutting interest rates by 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 25 basis point cut is 19.5%, and the probability of a cumulative 50 basis point cut is 80.3%.

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

As we all know, interest rate cuts will likely lead to another burst of liquidity, thereby pushing up the prices of US dollar assets.

In addition, according to Cointelegraph analysis, the U.S. 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 U.S. election, possible interest rate cuts by the Federal Reserve, and Russia's lifting of the ban on Bitcoin mining - all of which occurred in November.

According to data from Apollo and SoSoValue, U.S. spot Bitcoin ETF issuers currently hold 976,893 Bitcoins, worth more than $66.2 billion, 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 rises is a Trump victory: “If he does win, we think the momentum in risk assets could push Bitcoin to $100,000 by the end of the year.”

QCP Capital, a Singapore-based crypto investment firm, said in a statement that the US election is only two weeks away 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.

Markets are currently pricing in a possible Trump presidency. Talk of tariffs and tax cuts has led to a stronger dollar and higher Treasury yields. Given Trump’s more cryptocurrency-friendly stance, it’s no surprise 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 election, the Fed may quickly cut interest rates next year. According to the analysis, after the 50 basis point rate cut in September, the Fed may cut interest rates twice more by 25 basis points in 2024. 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 economic forecast summary in September.

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

The Bank of Canada cited this as a sign that the country is 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 rates four times since June. Inflation fell to 1.6% in September, below its 2% target.

The ECB also lowered its deposit facility rate from 3.5% to 3.25%, in line with market expectations, while adjusting its 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 in response to weaker-than-expected economic growth. Kim said that the Bank of Korea is expected to cut interest rates by 25 basis points in January, April and July 2025 respectively.

The Bank of Korea began loose monetary policy by cutting its benchmark interest rate to 3.25% from 3.50% on Oct. 11. 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 interest rate cuts will inject more funds into global liquidity and benefit risky assets. With the continuous increase in liquidity, the market sentiment of cryptocurrencies has improved significantly.