The crypto market under macroeconomic uncertainty: expectations of interest rate cuts and range-bound liquidity, with the market focusing on Powell's first meeting "after the pause".

Despite the uncertainty in the macroeconomic environment, the crypto market is experiencing a significant influx of capital, with Bitcoin (BTC) even breaking through the historical high of $125,000. This wave of rise is mainly due to the market front-running the narrative that the Fed may cut interest rates in October. This expectation of a rate cut stems from the government shutdown in the United States leading to delays in the release of key economic data (such as CPI, PPI, and employment data), as well as the FOMC minutes from September highlighting that employment data was weaker than expected (with a loss of 32,000 jobs in September ADP), putting greater easing pressure on the Fed. However, with the dollar (DXY) strengthening and funds rotating into U.S. Treasuries (with the 10-year Treasury yield falling below 4.15%), global liquidity is tightening, resulting in an outflow of $90 billion from the crypto market this week. Market focus has now shifted to Fed Chairman Powell's first public speech after the government shutdown to assess the strength of any rate cut signals.

The Core Driving Force of Capital Inflows: Preempting Fed Rate Cuts

The significant rise in the crypto market is not driven by itself, but rather a preemptive response to expectations of macro policy.

· Expectations of interest rate cuts rise: Due to weaker-than-expected employment data (September ADP data shows a loss of 32,000 jobs) and a slight increase in inflation, the September FOMC meeting minutes indicate that Fed officials have lowered their expectations for recent policy rates. The report notes that nearly half of respondents expect the Fed to cut rates again at the October meeting.

· Data latency boost: The U.S. government shutdown has caused delays in the release of key economic indicators such as CPI, PPI, and official employment data, creating a “data vacuum” for the market. This information scarcity, combined with the seasonal effects of the traditional “October bull market,” has accelerated the market's front-running of the narrative that the “Fed will cut rates to avoid employment risks.”

· BTC hits a new high: Driven by this expectation, over $300 billion flowed into the crypto market, pushing BTC to an all-time high of $125,000.

The Tug-of-War Between the Dollar and U.S. Treasuries: Risk Assets Under Pressure

Although the expectation of interest rate cuts has injected optimism into the crypto market, the shift in macro funds flow is limiting its upward potential.

· Strengthening of the dollar and tightening liquidity: The Dollar Index (DXY) has broken through the 98 mark, indicating that the dollar is regaining strength. A stronger dollar means higher transaction costs in dollar terms, tightening global liquidity and putting pressure on risk assets, including Crypto Assets.

· Safe-haven funds rotate into U.S. Treasuries: Safe-haven funds have begun to rotate into U.S. Treasuries, a trend supported by the 10-year U.S. Treasury yield falling below 4.15%. The decline in yield reflects an increased demand for safe assets.

· Crypto market outflow: The strength of the dollar and the absorption effect of US bonds are not random, which directly led to a capital outflow of 90 billion USD in the crypto market this week, indicating that the impact of macro liquidity tightening has already manifested.

Market Focus: Powell's First “Post-Pause” Meeting

In an uncertain macro environment, the market is holding its breath for the latest statement from the Fed chairman.

· Key macro pulse: There are only 20 days left until the next FOMC meeting, but the market is still “walking on thin ice” regarding the Fed's next move. Although the minutes from the September meeting have leaned dovish, the market is still waiting for clear guidance from Fed Chair Powell.

· Powell's speech: Powell will make his first public appearance after the government shutdown, attending a community banking conference. The market will closely watch his words to assess his views on weak employment and the impact of the government shutdown on banks, and to capture signals on whether the “rate cut” narrative will receive further reinforcement from officials.

· Importance: Due to the recent high correlation between the crypto market and macroeconomic trends, Powell's speech will be a key indicator for mapping the U.S. macro cycle and predicting future capital flows into the crypto market.

Conclusion

The historic breakthrough achieved by the crypto market amid macro uncertainty is a bold “leap ahead” of the interest rate cut expectations. However, this wave of rise is facing challenges from a stronger dollar and a rotation of funds toward safe-haven U.S. Treasuries. The current market is a ** tug-of-war between bulls and bears**: on one hand, there are easing expectations triggered by weak employment, while on the other hand, there is selling pressure due to tightening liquidity. The meeting of Fed Chairman Powell will become a key event to break the deadlock and set the next market direction.

Do you think Powell's speech is more likely to lean towards hawkish (fighting inflation) or dovish (supporting employment), and how will this affect the direction of the crypto market next week?