Bitcoin awaits the opening of liquidity gates, while gold has already taken the lead in deployment.

Why Rate Cuts Have Failed to Save Bitcoin? The Answer Lies in Liquidity

On the surface, the Federal Reserve has initiated a new rate-cutting cycle, yet Bitcoin prices remain around $80,000, while gold continues to rise. This is in stark contrast to traditional economic theory—low interest rates should favor high-risk assets—so why is the reality different?

To understand this puzzle, one must recognize a harsh reality: there is a “middle-layer blockage” between policy rate cuts and actual liquidity release.

Nominal interest rates are lowered, but real interest rates remain high. The reason is simple—inflation has not eased at all. Banks have not substantially relaxed lending standards, and companies are still reluctant to borrow. Worse, the US Treasury is aggressively issuing bonds. In the second half of 2025, new debt issuance for rolling over old debt is far exceeding policy liquidity releases. The result is: overall liquidity is not expanding but contracting.

Why is gold rising against the trend? Because it is a globally priced asset with the strongest macroeconomic signal penetration. Investors see through the debt trap and hedge against dollar risk in advance. Although Bitcoin is also a globally priced asset, it faces a different dilemma—there is currently a lack of “available funds” in the market to drive its rise.

This is Not a Growth Cycle, but Defensive Rate Cuts

This round of rate cuts is fundamentally different from previous bull market cycles. The Fed is not cutting rates due to a strong economy but is compelled to do so under the pressure of rising unemployment, increasing corporate default risks, and soaring government debt servicing costs.

This is a typical defensive rate cut, driven not by growth expectations but by recession fears.

Under this mindset, institutional investors’ behavior patterns change fundamentally. Their priority shifts from seeking returns to risk avoidance—tightening risk exposure, building cash buffers, and prioritizing survival over returns.

Bitcoin happens to be one of the most liquid high-risk assets globally. When the market is under pressure, it is viewed by institutions as a “liquidity faucet”—an object to be sold at all costs for cash. This mechanism follows the same logic as during price rallies: during uptrends, funds flow into cryptocurrencies; during downtrends, they are the first to exit. Risk aversion begins with Bitcoin, and not just stops there.

In contrast, gold plays another role—it is the ultimate tool for hedging against dollar depreciation, and investors are waiting for real interest rates to decline.

The US Falls into a “Debt Triangle” Dilemma

The deeper root of the problem is that US interest payments have surpassed defense spending, becoming the third-largest federal expenditure after Social Security and Medicare.

Washington faces an unsolvable trilemma:

First path: Continue issuing new debt to pay off old debt, endlessly rolling over. But with federal debt exceeding $38 trillion, this approach will only accelerate out of control.

Second path: Shift to short-term notes to lower long-term yields and reduce average financing costs. But this is a band-aid, not a cure—fundamental contradictions remain.

Third path: Achieve implicit default through currency devaluation—using a shrinking dollar to pay off maturing debt.

Behind gold soaring to $4,500 is the collective pricing by global investors on this irreversible option. Central banks and institutional investors are all hedging against the late-stage risks of dollar credibility crisis.

Simple rate cuts are far from enough. Wall Street is now openly discussing: to avoid systemic collapse, only continuous monetary expansion and moderate inflation can do. But this creates a vicious cycle—either printing money leads to currency devaluation, or stopping printing causes default. History shows this choice is unavoidable. The Fed is unlikely to tolerate systemic collapse; QE and yield curve control are no longer probabilistic but timing issues.

2026: From Liquidity Contraction to Flooding

Understanding the above logic, the current divergence between gold and Bitcoin makes sense. Both are inflation hedging tools, but timing is the key to victory.

Gold has already preemptively priced in the arrival of the money expansion era, while Bitcoin is waiting for this signal to be officially confirmed.

Market evolution will unfold in two acts:

Act One: Economic Recession Impact and Gold’s Final Glory

When recession indicators are fully confirmed (e.g., US unemployment surpassing 5%), gold will be redefined as the “safest asset,” with prices possibly soaring further.

But this is also Bitcoin’s darkest hour. In the early stages of a recession, all assets are indiscriminately sold off to raise cash. Margin calls and forced liquidations will dominate the market. History proves: during the 2008 financial crisis, gold first fell 30% before rebounding; in the March 2020 pandemic shock, gold dropped 12% in two weeks, while Bitcoin was halved.

Liquidity crises are systemic, with the only difference being who can recover faster—gold usually stabilizes quickly, while Bitcoin needs more time to rebuild confidence.

Act Two: The Fed’s Ultimate Surrender and Bitcoin’s Liquidity Explosion

Rate cuts will ultimately be insufficient to resolve economic difficulties. Economic pressures will eventually force the Fed to expand its balance sheet again.

This is the moment when the liquidity floodgates truly open.

At that point, gold may enter a consolidation phase, while excess liquidity will aggressively flow into high-beta assets. Bitcoin, as the “purest vessel of surplus liquidity,” will become the main recipient of this capital flow.

Price movements in this scenario are usually not gradual—once momentum builds, Bitcoin’s rally could reach extreme levels within months.

Silver: The Forgotten Sidekick

Silver’s rise in 2025 will be driven by two forces: its traditional linkage with gold and industrial demand—AI infrastructure, solar energy, and electric vehicles all create a hunger for silver.

Inventories at major exchanges (Shanghai Futures Exchange, London Bullion Market Association, etc.) have fallen to critical levels. Silver typically performs more fiercely in bull markets but also declines more sharply in bear markets.

The gold-silver ratio remains a key reference. Silver above $80 is historically considered cheap; below $60 it is relatively expensive compared to gold; below $50 often signals a speculative bubble.

Currently, silver hovers around $59, signaling that the market is “shifting horses”—from silver to gold, rather than actively stockpiling silver.

Long-term Perspective: The Unchanging Ultimate Logic

Setting aside the specific timeline of 2026, the long-term pattern is certain: both gold and Bitcoin will trend upward relative to fiat currencies.

The only variable is the leadership rotation—this year belongs to gold, the next phase will belong to Bitcoin.

As long as global debt continues to grow and monetary authorities rely on dollar devaluation to release systemic pressure, scarce assets will inevitably outperform others. From an ultimate perspective, fiat currencies are always the only assets that continue to lose value.

What is needed now is patience, disciplined data observation, and calm analysis. The transition of leadership from gold to Bitcoin will not be announced officially—it will happen silently through liquidity indicators, policy shifts, and capital rotations.

These signals are worth continuous monitoring.