Many people think that as soon as the Fed cuts interest rates, crypto prices should skyrocket—is it really that simple?

In reality, the transmission path is much more complicated. First, let’s look at the US dollar angle: rate cuts directly reduce the yield on dollar-denominated assets, so hot money naturally looks for new opportunities. When the dollar is weak, things priced in dollars—including BTC—often surge even more.

Next is the issue of liquidity. When rates go down, borrowing costs drop, and cheap money floods the market. Remember the frenzy from 2020 to 2021? That was essentially the direct result of the Fed opening the floodgates, and some of that capital inevitably rushed into high-risk areas.

The third layer is the “mental accounting” effect. When the Fed signals an easing stance, investors become bolder, pulling money out of bonds and money market funds and pouring it into stocks and crypto; conversely, when the Fed turns hawkish, funds quickly flow back to safe-haven assets like Treasuries.

Tie these three clues together and you get this chain reaction: “Central bank decision → Dollar trend/market liquidity → Risk appetite → Crypto asset prices.”

Currently, there are two mainstream views about BTC: is it “digital gold” or a “risk asset”?

According to the digital gold logic, it should go up when markets crash, negatively correlated with the stock market. But if it’s a risk asset, it should rise and fall with the Nasdaq, taking off when liquidity is abundant.

The real data contradicts the former view. Research from the CME Group shows that since 2020, the correlation between BTC and the Nasdaq 100 has soared from nearly zero to around 0.4, and even broke 0.7 at its peak. So if it truly were digital gold, it should shine during times of panic like physical gold does, but in reality...