The global interest rate cut cycle has begun, and the Crypto Assets market may welcome new opportunities.

In the current macroeconomic situation, Crypto Assets investment strategies are facing a new turning point. Recently, the Bank of Canada and the European Central Bank announced interest rate cuts, indicating that the Crypto Assets market may soon recover from the summer slump and welcome a new bull market. Since 2009, Bitcoin and other Crypto Assets have been a powerful weapon against the traditional financial system. In the context of the current changes in the macro environment, actively going long on Bitcoin and other Crypto Assets may be a wise choice.

The USD-JPY exchange rate is considered one of the most important macroeconomic indicators. To strengthen the yen, there is a view that the Federal Reserve could exchange newly printed dollars for yen with the Bank of Japan in unlimited quantities. This would enable the Bank of Japan to provide ample dollar funds to the Japanese Ministry of Finance for purchasing yen in the global foreign exchange market.

However, the central banks of the G7 countries (G7) seem to have chosen a different path. They are trying to convince the market that the interest rate differentials between the yen and the dollar, euro, pound, and Canadian dollar will narrow over time. If the market believes this outlook, it will buy yen and sell other currencies. To achieve this, the G7 central banks must lower their high policy interest rates.

It is worth noting that the policy interest rate of the Bank of Japan is only 0.1%, while the rates in other countries are around 4-5%. The interest rate differential between currencies fundamentally drives exchange rates. From March 2020 to early 2022, central banks around the world generally maintained low interest rate policies. When inflation became serious enough that the elites could no longer ignore it, all G7 central banks, except for the Bank of Japan, began to actively raise interest rates.

The reason the Bank of Japan cannot raise interest rates is that it holds more than 50% of Japanese government bonds. If interest rates were allowed to rise, the prices of Japanese government bonds would fall, causing this highly leveraged central bank to suffer huge losses. Therefore, if G7 decision-makers wish to narrow the interest rate spread, the only option is for those central banks with "high" policy interest rates to lower their rates.

Traditional central bank theory suggests that when inflation is below target, lowering interest rates is beneficial. However, the inflation rates in G7 countries are generally above the 2% target. From a technical analysis perspective, G7 inflation seems to have formed a local bottom within the range of 2-3%, after which it may rise further.

Nevertheless, this week the Bank of Canada and the European Central Bank chose to cut interest rates despite inflation being above target. This move is quite unusual, as there is currently no evident financial turmoil that necessitates a more accommodative monetary policy.

These interest rate cuts may be related to the weakness of the yen. Some analysts believe that the United States may have halted its plans for interest rate hikes and is instead focusing on maintaining a U.S.-led global financial system. If the yen is not strengthened, China may devalue the renminbi to match the low-priced yen of its main export competitor, Japan. This could lead to the dumping of U.S. Treasury bonds, threatening America's global economic position.

The upcoming G7 meeting will attract significant market attention. The post-meeting communiqué may announce some coordinated currency or bond market operations to strengthen the yen, or suggest that other central banks, apart from the Bank of Japan, will start cutting interest rates.

Whether the Federal Reserve will start cutting interest rates as the November U.S. presidential election approaches is an important question. Typically, the Federal Reserve does not change policies on the eve of an election. However, given the uniqueness of the current political situation, we need to maintain a flexible mindset.

If the Federal Reserve unexpectedly cuts interest rates at the upcoming June meeting, the USD/JPY exchange rate may decline significantly, and the yen will strengthen. However, considering the impact of inflation on the general public, the Federal Reserve may choose to keep the current policy unchanged.

The upcoming meeting of the Bank of England is also worth paying attention to. Although the market generally expects its policy interest rate to remain unchanged, given the rate cuts from the Bank of Canada and the European Central Bank, we might see an unexpected rate cut decision.

Overall, changes in global central bank policies are creating a favorable environment for the Crypto Assets market. Peripheral central banks have begun a new round of easing cycles, which may drive up Bitcoin and other Crypto Assets. For investors holding synthetic dollar cash and earning high yields, now may be a good time to redeploy funds into promising crypto projects.

The crypto bull market seems to be awakening and may soon break through the expectations of central bank governors. During this opportunity-filled period, investors should closely monitor market trends and adjust their investment strategies in a timely manner.