Why do many people look at the Federal Reserve first when BTC rises and falls instead of the K-line?

Many newcomers in the crypto space have this question. It is clear that they are buying cryptocurrencies, yet the groups are discussing interest rate cuts, non-farm payrolls, and fiscal deficits every day, making it seem like financial news is more important than technical analysis.

The reason can be summed up in one sentence: What truly drives the market is not just the buyers and sellers but also the liquidity in the market.

And controlling this “liquidity” are two macro terms that you often hear: monetary policy and fiscal policy.

You don't need to memorize complicated economic definitions; let's use the easiest way to understand:

If we see the entire economy as a person, the central bank and government are two doctors with different roles.

The central bank is responsible for “regulating body temperature,” using the tool of 【interest rates】.

If the economy feels too hot (high inflation, soaring prices), they will raise interest rates to cool it down; if the economy feels too cold (people are not spending), they will lower interest rates to stimulate. It influences —whether borrowing money is expensive or not.

The Treasury is responsible for “blood transfusions,” using the tools of 【taxation and spending】.

If the economy lacks vitality? Directly issuing subsidies, conducting infrastructure projects, or cutting taxes. These actions will directly inject money into the market. It influences —how much money is actually flowing in the market.

Remember this in one sentence: Monetary policy controls “how expensive money is,” while fiscal policy controls “how much money there is.”

🎨 Simplified Comparison of Monetary Policy vs. Fiscal Policy

Why Is the Crypto Space Particularly Afraid of the Federal Reserve “Tightening Liquidity”?

Because risk assets rely heavily on abundant liquidity. Both BTC and most cryptocurrencies essentially belong to risk assets.

Looking back at 2020, global central banks dramatically cut interest rates and directly initiated quantitative easing (QE) — essentially the central bank turned on the money printing presses and injected massive amounts of cash directly into the banking system.

At this time, bank interest rates were close to zero, and people found that putting money in the bank yielded no return while the cost of borrowing was extremely low. Hence, a large amount of capital started to overflow into tech stocks and the crypto market. As liquidity continued to be released, risk assets generally benefited, and BTC experienced the strongest bull market in history.

The reverse is also true.

In 2022, the Federal Reserve initiated the most aggressive interest rate hike cycle in decades. When U.S. Treasury yields soared above 5%, many large funds and institutions thought: “How great it is to earn a risk-free return of 5% while lying down; why take the risk of buying highly volatile cryptocurrencies?”

As a result, risk assets came under pressure, and the crypto market underwent more than a year of deep adjustment.

So, why are people watching the CPI (Consumer Price Index), non-farm payrolls, and FOMC (Federal Open Market Committee) daily now?

Essentially, the entire market is trying to judge whether the central bank is going to loosen liquidity (step on the gas) or tighten liquidity (hit the brakes).

Fiscal Policy: The “Invisible Big Player” Many Newbies Overlook

The transmission of fiscal policy is not as quick as interest rate cuts, but it determines the long-term underlying narrative.

Take a practical example. If a country continuously borrows money and its fiscal deficit grows larger, even having to rely on a looser monetary environment to maintain operations.

At this point, more and more funds will start to think about a question:

If fiat currency is increasingly easy to devalue, what assets will not be arbitrarily issued?

Thus, the anti-inflation feature of Bitcoin being “21 million coins, constant supply” will be revalued. This is also why in recent years, more and more institutions refer to BTC as “digital gold.”

Buying it is not just for speculative wealth but also to hedge against the long-term risk of declining purchasing power of fiat currency.

How Should Newbies View This?

As an ordinary trader, it’s unnecessary to analyze complicated macro reports every day. Just focusing on these two core indicators is enough:

First, watch the central bank (watch body temperature)

Key focus: Are there expectations for interest rate cuts? Is liquidity increasing or decreasing? The more loose the liquidity, the more risk assets typically benefit.

Second, watch the government (watch blood volume)

Key focus: The scale of national debt, deficit rate, large-scale stimulus plans. These will impact the market's long-term expectations for future monetary value and risk assets.

Monetary policy determines whether there is “fuel” for the market, while fiscal policy determines whether there is “money.”

When both are loose, it often leads to significant bullish cycles; if both tighten, the market tends to be more cautious and leans towards existing competitions.

Of course, this is not an absolute cause-and-effect relationship but a macro law that has repeatedly appeared in history.

After all, in the current crypto market, ETF fund flows, the regulatory attitude of various countries, on-chain data, and market sentiment can all break the macro script at any time.

Macro policy is more suitable as a compass for gauging the warmth of the external environment, rather than a specific trading button.

Over the years, my biggest feeling is: many opportunities are not about who knows first, but who prepares first.

Macro events often explode in an instant; waiting for the news to land before frantically operating usually means you won't even get a taste.

Therefore, I always maintain a habit: preparing the trading account in advance and setting up information channels. When opportunities truly arise, often what matters is not speed but who is better prepared.

If you don’t have a Binance account, you can register in advance:

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If you want to be the first to know about the Federal Reserve's policy meetings, non-farm payroll data, on-chain funding, etc., you are also welcome to join our discussion group to exchange insights on the market.

https://www.aicoin.com/link/chat?cid=gmLgwvKD1

 Markets change every day, having one more communication channel is never a bad thing.

Risk warning: This content is only for sharing market observations and does not constitute investment advice. The crypto market is highly volatile; please participate within your risk tolerance.

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