Tide Capital: Fed Rate Cut Signals New Cycle for Bitcoin

Summary

• The Fed cuts interest rates by 50 bps, officially ending the tightening cycle, and BTC is set to enter a new market cycle.
• Market sentiment has reached a turning point, where altcoins are performing strongly. Meme coins, DeFi, and new L1s are worth attention.

The Fed Enters a Rate-Cutting Cycle, A New Market Trend is About to Begin

With the 50bp Rate Cut in Place, the Market has Regained Confidence and Risen

In response to market expectations, the Fed began a new rate-cutting cycle by reducing interest rates by 50bp in an unconventional manner, officially ending the tightening cycle that began in early 2022. After the meeting, Jerome Powell reiterated that the rate cut does not signal urgency and emphasized that there are no signs of a recession, providing clear guidance to the market.

In the short term, market uncertainty has been eliminated, and investor confidence has strengthened. Following the rate cut, U.S. stocks and gold hit new highs, while cryptocurrencies surged broadly. The rate cut helps achieve the ideal state of “sufficient easing but decent growth”, and the market is adapting to this new normal. In the medium to long term, the Fed’s rate cut has officially initiated a loosening cycle, which will help achieve a soft landing for the economy and push up risk assets.

Although the exact path of rate cuts is uncertain, the trend toward easing remains, and the valuation of risk assets will rise accordingly. BTC has been oscillating between $50k and $70k for six months, and a new uptrend may soon begin. Before the U.S. election, BTC may see some pullback due to uncertainties, but the correction will likely be limited.

Capital Continues to Flow into the Crypto Market as Stablecoins Hit New Highs

Since entering September, the total supply of stablecoins has risen by $3 billion, indicating continued capital inflow into the crypto market. Compared to a year ago, the total stablecoin supply has increased by $50 billion, nearing an all-time high.

During the Fed’s rate-hike cycle, short-term interest rates exceeded 5%, leading capital to leave the crypto market in pursuit of higher stable returns. In contrast, in the context of a Fed rate-cutting cycle, lower off-market rates reduce the cost of capital for investors. Currently, the U.S. 1-year Treasury yield has fallen below 4%, and it is expected to decline further, which will support capital inflows into the crypto market.

Bitcoin Mining Costs Exceed Current Prices

Since Bitcoin’s halving in April, mining costs have risen significantly. Currently, the average mining cost of Bitcoin is around $74,000, which is higher than the current market price.

Historically, when Bitcoin’s price is below mining costs, it tends to be in a relative bottom zone, and after a sufficient period of consolidation, a significant rally often follows. Since April of this year, Bitcoin’s price has been below mining costs for five months, a positive signal for bottom consolidation.

The sharp rise in Bitcoin’s production cost further increases its scarcity. Against the backdrop of global central banks entering an easing cycle, investors are inclined to seek assets with scarcity. Over a longer time frame, Bitcoin is becoming increasingly scarce, with rising acquisition costs, which will drive up its value.

Market Sentiment Turns as Altcoins Perform Strongly

Altcoins are Strengthening, and Meme Coins are Worth Watching

Since the Fed’s rate cut, market uncertainty has been alleviated, and risk appetite is gradually rising. Bitcoin’s dominance is starting to decline, and many altcoins are showing strong performances. The market’s profit-making effect is increasing, which benefits further recovery in sentiment and valuations.

Among the many rising altcoins, meme coins are the most eye-catching. On September 16, Binance listed $Neiro, driving its market value from $15 million to $500 million, a 30x increase.

The success of $Neiro has created a massive wealth effect, igniting trading enthusiasm in the crypto market. According to DeFiLlama statistics, Meme coins have been the best-performing narrative over the past 30 days.

As the crypto market matures, low-liquidity, high-valuation VC coins are facing major challenges, making it difficult for secondary market investors to achieve high returns. Fully liquid, low-valuation meme coins are more appealing to investors because there are no potential sell-offs. In terms of both market cap and mindshare, meme coins are gaining influence and are worth investors’ attention.

Old DeFi Projects are Seeing a Second Spring, Aave Stands Out

As the Fed shifts to a rate-cutting cycle, the opportunity cost for investors decreases. More capital will flow from traditional finance into DeFi stablecoin staking for more attractive returns. In a bull market, higher risk appetite will also lead to more borrowing. Older DeFi projects are set to experience a revival, and as a leading lending project, Aave will benefit.

Since its launch in 2020, Aave has operated smoothly without any major security incidents at the smart contract level. The platform’s strong risk management and safety record are often the primary factors DeFi users consider when choosing a lending platform. AAVE’s monthly active users hit an all-time high in May this year, reaching 114,000.

Aave’s total value locked (TVL) has reached $12.5 billion, ranking first among all lending protocols. At the same time, Aave is deployed on nearly all major EVM L1/L2 chains, maintaining a leading position in the multi-chain ecosystem.

Aave’s revenue in June reached $7.49 million, an all-time high. Despite the overall weak market, average monthly revenue from April to August exceeded $6 million, surpassing the peak levels of the 2021 bull market.

Aave’s growth is not driven by large token incentives but is organic and sustainable. Current monthly token incentives are only around $4 million, far lower than the levels seen at the peak of the last bull market (over $40 million).

As the oldest DeFi lending project, Aave continues to show impressive growth. In the context of the rate-cutting cycle, external capital will continue to flow into DeFi, driving Aave’s business growth. In terms of price action, $AAVE has outperformed many altcoins, already hitting a new high for the year. As a new bull market unfolds, $AAVE’s uptrend is expected to continue, making it a leader in the DeFi sector.

The Strong Growth of a New Generation of Public Blockchains: Sui

In this rally, Sui has been the standout performer among public blockchains. From its low in August, $SUI has risen over 200%, nearing its all-time high from March.

Since September, Sui has been increasingly favored by institutional investors. On September 12, Grayscale announced the launch of the Grayscale Sui Trust, officially providing qualified investors with access to invest in $SUI. On September 17, Circle announced that it would soon launch native USDC on the Sui network, further supporting the growth of the Sui ecosystem.

Looking at Sui’s on-chain data, capital is pouring into its ecosystem. Compared to a year ago, Sui’s TVL has grown from $25 million to $960 million, a nearly 40x increase.

Compared to other public blockchains, Sui’s growth has been the strongest. Among public blockchains with over $500 million in TVL, Sui has grown the fastest over the past month, with a growth rate exceeding 50%.

According to Artemis data, approximately $274.33 million has flowed into the Sui ecosystem in the past month. The Ethereum ecosystem contributed the most, with about $250 million in inflows, followed by Solana with $20.92 million.

Since Solana gained market recognition, investors have been looking for the next strongly growing public blockchain. Whether it’s TVL growth or capital flows, Sui is showing impressive growth. Despite this, Sui still has substantial growth potential, with a fully diluted valuation (FDV) of only $16 billion, compared to Solana’s near $90 billion.

In summary, public blockchains remain a focus of the market, and Sui has demonstrated significant growth potential and investment prospects. As the market continues to rise, Sui is expected to deliver more excess returns to investors.

Conclusion

As the Fed enters a rate-cutting cycle, a new bull run for BTC is likely to begin. Risk appetite is rising, and altcoins are worth paying attention to.

Tide Capital

Tide Capital is a research-driven digital asset investment and trading firm. We study macro and fundamentals to capture beta and alpha opportunities from crypto waves to financial tides. Driven by value, we aim to invest in early-stage projects with significant growth potential. Concurrently, we assess market cycles to inform our investment decisions, trading in the public market to achieve returns.

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Disclaimer

The information and data presented in this article are obtained from public sources, and Tide Capital makes no guarantees regarding their accuracy and completeness. Any predictions, speculations, or opinions contained in this article are statements about future events and may differ significantly from actual results due to limitations in data timeliness, assumption validity, uncertainty factors, and unforeseeable risks. Any advice and opinions in this article are for reference purposes only and do not constitute recommendations to buy or sell any digital assets. They do not constitute investment advice or solicitations. The strategies that Tide Capital may adopt may be the same, different, or unrelated to those inferred by readers based on this article. Investors should carefully consider any decisions and seek appropriate legal and financial advice when necessary. Any misunderstanding or misuse of the content in this article does not constitute the responsibility of the author or the publishing institution.