Fed Holds Interest Rate Steady as Crypto Market Continues Fluctuation

This month, the Fed FOMC meeting decision kept the interest rate unchanged, while raising future GDP expectations and lowering inflation expectations. Japan's first interest rate hike in 17 years has drawn global attention, but the upcoming interest rate cut cycle by the Fed may alleviate liquidity concerns. Meanwhile, European investors are also beginning to bet on interest rate cuts. The crypto market is currently in a state of adjustment, but from a supply-side analysis, there may still be sufficient upward momentum in the future.

On March 20, the Fed held its scheduled interest rate decision press conference, announcing that it would maintain the federal funds rate target range at 5.25% to 5.5%. Despite the CPI data in February being slightly higher than expected, the Fed chose to maintain the status quo. This marks the third consecutive time the Fed has opted not to raise rates, and the market widely believes that the rate hike cycle has ended. However, the Fed stated that there is currently no necessity to lower rates. The Fed raised its GDP growth expectations for 2024 to 2026, while lowering its unemployment rate expectations for 2024. Future rate cuts may only be considered after there are clear signs of weakness in the labor market.

Manufacturing performance has always been one of the key focuses of the Fed. In March, U.S. manufacturing activity recorded its largest increase in nearly two years, with production, employment, and price indicators all accelerating. The preliminary S&P Global U.S. Manufacturing Purchasing Managers' Index for March slightly rose to 52.5, remaining above the 50 expansion-contraction threshold for the third consecutive month. Driven by improvements in domestic and international demand, manufacturing output growth reached its strongest level in nearly two years, and the employment indicator hit an eight-month high. These data reflect the good performance of the manufacturing sector in the current economic environment.

Overall, the current major economic indicators in the United States show no need for interest rate cuts. Although the Fed previously indicated plans to cut interest rates three times this year, the market expects that there is a high probability that there will be no interest rate cut in May.

Apart from the US FOMC meeting, the Bank of Japan's announcement of an interest rate hike for the first time in 17 years has also attracted widespread attention. For a long time, the yen has become a favored arbitrage tool for overseas speculators due to negative interest rates. Now, the yen's interest rate hike has led to increased borrowing costs, which may cause speculators to sell other currencies to buy back yen. The market is concerned that this could withdraw liquidity from the international market, affecting the performance of dollar assets. However, the impact of this move by the Bank of Japan on the market may be more psychological in nature. International capital has long anticipated this, noting since 2022 that the era of yen arbitrage may be coming to an end. Furthermore, the upcoming interest rate cut cycle by the Fed will also partially alleviate investors' concerns about liquidity.

This month, the three major U.S. stock indexes reached new highs, but some investors predict a potential adjustment period for the U.S. stock market. AI remains one of the core driving forces of the global stock market, although some related stocks are experiencing profit-taking. However, the semiconductor sector has not completely cooled down, as Micron's stock surged after reporting earnings, indicating that the AI investment frenzy is still ongoing. In Europe, as signs of stagnation appear in the U.S. stock market, the Stoxx Europe 50 index has risen consecutively, mainly because investors are betting that the European Central Bank will follow the Fed in cutting interest rates.

The crypto market has experienced significant fluctuations this month. Bitcoin's price first hit a historic high of over $73,000, then retraced to below $61,000, and later rebounded to above $70,000. The U.S. Bitcoin spot ETF seems to have become an important factor in driving Bitcoin's movements. On-chain analysis shows that high-net-worth investors did not significantly reduce their holdings during this correction, while retail investors were the main sellers.

Although the introduction of ETFs has made this round of the bull market different from previous ones, the rise in mining costs caused by Bitcoin's halving remains one of the fundamental drivers of the bull market. From the supply side, the bull market may have just begun. As the value recognition of Bitcoin increases, miners are expected to achieve long-term stable profits similar to gold miners.

This month, Ethereum was once again classified as a security by the SEC, putting some pressure on the market. However, BlackRock CEO Larry Fink stated that even if Ethereum is recognized as a security, there is still a possibility of launching an Ethereum ETF. Currently, eight institutions have submitted applications for an Ethereum spot ETF to the SEC, with a final decision expected in May.

Overall, despite significant short-term market fluctuations, the long-term trend remains positive. With the halving cycle approaching, Bitcoin prices are expected to receive strong support from the supply side. However, there are still many uncertainties in the crypto market, and investors need to closely monitor regulatory developments.