Why Interest Rate Cuts Fail to Boost Bitcoin: Liquidity Channels Blocked

To understand why Bitcoin reacts tepidly to interest rate cuts, it may be helpful to start with gold. Gold is a globally priced asset. While retail investors typically trade in grams, international pricing is done in troy ounces and tons. It is this global pricing structure that amplifies the impact of macroeconomic factors.

Bitcoin shares this characteristic. Additionally, its price is globally uniform, meaning that any serious analysis must begin with the macroeconomic conditions in the United States.

The puzzle is evident. The U.S. has entered a new round of interest rate cuts, yet Bitcoin's price remains around $80,000, while gold prices continue to rise. Traditional theory suggests that low interest rates should benefit risk assets like stocks and cryptocurrencies. However, so-called defensive assets are rising against the trend.

This contradiction can be explained by two structural factors.

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The "Middle Layer Blockage" Issue

The market is concerned not with nominal interest rates, but with real interest rates. With inflation remaining high, even if policy rates are cut, real interest rates are unlikely to break through high levels as long as inflation persists.

From the perspective of the real economy, interest rate cuts have not translated into a looser financial environment. Banks have not substantially relaxed lending standards. Businesses remain unwilling to borrow. In other words, the middle layer between policy and capital allocation is still blocked.

Meanwhile, the U.S. Treasury continues to issue a large amount of new debt. In the second half of 2025, the pace of bond issuance for refinancing existing debt exceeds the liquidity released by interest rate cuts. The result seems counterintuitive but is crucial: overall liquidity has not expanded; rather, it has contracted.

Currently, there is not enough "available capital" to drive Bitcoin prices up.

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This is a Defensive Interest Rate Cut Cycle, Not a Growth Cycle.

This round of interest rate cuts is fundamentally different from previous cut cycles that drove bull markets. The Federal Reserve is cutting rates not because of strong economic growth, but due to rising unemployment, increasing corporate default rates, and unsustainable government debt servicing costs.

This is a defensive interest rate cut, primarily influenced by concerns over economic recession and stagflation risks.

In this environment, the behavior of capital changes. Institutional investors prioritize survival over returns. Their first reaction is not to chase volatility but to reduce risk exposure and build cash buffers.

Despite Bitcoin's long lifecycle, it remains one of the most liquid high-risk assets in the world. When market pressures increase, it is seen as a source of liquidity—a financial ATM. Risk aversion begins with cryptocurrencies, not ends there.

This logic mirrors that of rising cryptocurrency prices. During periods of price expansion, funds eventually flow into cryptocurrencies; whereas during times of rising uncertainty, funds flow out of cryptocurrencies first.

In contrast, investors are waiting for a significant decline in real interest rates, while gold is used as a hedge against dollar depreciation.

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Deeper Issue: The U.S. Debt Trilemma

U.S. interest payments have now surpassed defense spending, becoming the third-largest expenditure for the federal government after Social Security and Medicare.

Washington effectively has three choices left.

First, roll over debt indefinitely by issuing new bonds to pay off old ones. Given that the total federal debt exceeds $38 trillion, this approach will only exacerbate the problem.

Second, suppress long-term yields by shifting to short-term note issuance to lower average financing costs, but this does not address the fundamental imbalance.

Third, and most importantly, allow for implicit default through currency devaluation. When debt cannot be repaid at real value, it is repaid with devalued dollars.

This is the structural reason behind gold prices soaring to $4,500. Countries around the world are hedging against risks in the later stages of the dollar credibility crisis.

Simply cutting interest rates is not enough. Many on Wall Street now openly claim that to avoid collapse, the financial system requires ongoing monetary expansion and manageable inflation. This creates a deadly vicious cycle: either printing money leads to currency devaluation, or refusing to print money triggers defaults.

History shows that this choice is inevitable. The Federal Reserve is unlikely to tolerate systemic collapse. The reimplementation of quantitative easing and yield curve control now seems more a matter of timing than probability.

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2026 Strategic Planning: From Liquid Darkness to Flood

Once this framework is understood, the current divergence between gold and cryptocurrencies becomes reasonable. Both assets can hedge against inflation, but timing is crucial.

Gold signals the trend of future monetary expansion, while Bitcoin is waiting for confirmation.

In my view, the path forward unfolds in two phases.

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Act One: Economic Recession Shock and "Gold Peak"

When recession indicators are fully confirmed—such as the U.S. unemployment rate exceeding 5%—gold prices may remain high or even surge further. At that point, it will be seen as the safest asset.

However, Bitcoin may face one last round of decline. In the early stages of a recession, all assets are sold off to raise cash. Margin calls and forced liquidations will dominate market behavior.

History has made this clear. In 2008, gold prices fell nearly 30% before rebounding. In March 2020, gold prices dropped 12% in two weeks, while Bitcoin's price was halved.

Liquidity crises affect all assets. The distinction lies in which asset recovers first. Gold typically stabilizes and rebounds faster, while Bitcoin takes longer to rebuild market confidence.

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Act Two: The Federal Reserve's Yield and Bitcoin Liquidity Explosion

Ultimately, interest rate cuts will not be sufficient to address economic pressures. Economic strain will force the Federal Reserve to expand its balance sheet again.

This is the moment when the liquidity floodgates truly open.

Gold prices may consolidate or trade sideways. Funds will actively shift towards high beta assets. Bitcoin, as the purest manifestation of excess liquidity, will absorb this flow of funds.

In this scenario, price movements are rarely gradual. Once momentum builds, Bitcoin's price could experience dramatic changes within months.

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Notes on Silver and the Gold-Silver Ratio

The rise of silver in 2025 is driven by two main factors: its historical correlation with gold and its industrial demand. AI infrastructure, solar energy, and electric vehicles heavily rely on silver.

By 2025, inventories at major exchanges, including the Shanghai Futures Exchange and the London Bullion Market Association, will have fallen to critical levels. In bull markets, silver typically outperforms gold, but in bear markets, silver also carries higher downside risk.

The gold-silver ratio remains a key indicator.

When silver prices exceed $80, they are historically considered cheap. Below $60, silver is relatively expensive compared to gold. Below $50, speculative excess often dominates.

Currently priced around $59, this signal indicates that the market will shift towards gold rather than aggressively hoarding silver.

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Long-Term Perspective: Different Leaders, Same Goal

Setting aside the specific timeframe of 2026, the long-term conclusion remains unchanged. Both gold and Bitcoin are trending upward against fiat currencies.

The only variable is leadership. This year belongs to gold, while the next phase belongs to Bitcoin.

As long as global debt continues to expand and monetary authorities rely on currency devaluation to relieve pressure, scarce assets will outperform others. In the long run, fiat currencies will always be the only consistently losing asset.

What matters now is patience, data, and discipline. The transition from gold dominance to Bitcoin dominance will not be publicly announced—it will manifest through liquidity indicators, policy changes, and capital rotations.

I will continue to monitor these signals.

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