Last night we welcomed the long-anticipated rate cut, but today the cryptocurrency market has plummeted again. This kind of “good news turning into bad news” is actually quite common in the crypto space.
In simple terms, the market operates on the principle of “buy the expectation, sell the fact.” The news of the rate cut has already been speculated on multiple times before the announcement, and prices have risen accordingly. When the good news finally materializes, there may not be any new stories to tell, and those who had already positioned themselves may take the opportunity to sell off at the spike.
Specifically for this instance, there are several key details that enhance this sense of “exhaustion”:
1. The divergence in “hawkish” signals and the pause represents the largest internal disagreement within the Federal Reserve in six years, with three dissenting votes. Moreover, it is clearly indicated that rate cuts will significantly slow down next year, and there may not be any actions in the near term.
The market also understands its underlying message; this rate cut feels more like a "patch" for the previous economy rather than the beginning of a new easing cycle. Expectations for "cheap money" have been significantly reduced.
Previously, everyone was worried about "hawkish rate cuts," and now the Federal Reserve's stance is tantamount to a tacit acknowledgment of that. This is not good news for the crypto space that is heavily reliant on liquidity.
2. The giant whales "cooperating" to dump, right when Powell was speaking, on-chain data captured that a "giant whale" sold $100 million worth of Bitcoin within an hour. Professional large funds excel at leveraging this kind of retail sentiment of "realizing good news" to distribute chips at high levels. The result is that the market briefly surged after the news was announced, then quickly plunged, leading to a large number of high-flying contracts being liquidated.
3. The market itself is very fragile. Before the news came out, the crypto space had already dropped for a while due to poor liquidity and uncertainty over rate cuts. In such a "weak market," any positive news that falls short of expectations will be magnified into negative news.
So, this drop is not because of the rate cut itself but because the market's "expectation management" has collapsed. Everyone was hoping for "dovish tones," only to be met with "divergence" and "wait and see." When the biggest good news turns into a thing of the past, and the future looks uncertain, a drop becomes the most direct choice.
A simple metaphor, it's like everyone is waiting for a "big red envelope," only to find that it's a "discount coupon for next time," and the kind with many restrictions. It's normal to sell off things that were previously hyped up in disappointment.
