This article is reprinted with permission from Phyrex, and the copyright belongs to the original author.
In the past week, it can be said that although there has been no change in the macro trends of the United States, nor has it affected the current narrative of the risk market, a lot of data and events have still caused significant headaches for investors. Especially since last Friday, there has been a decline, raising the question of whether this is a pullback in a bull market or the beginning of a bear market. We will try to make a judgment from a more detailed perspective.
- The Main Game in the U.S. Risk Market Currently
Since the beginning of 2025, the U.S. risk market has experienced multiple rounds of policy games of different natures, including the policy gap brought by Trump's inauguration, the advancement of tariff policies, the escalation of the China-U.S. trade war, and the short-term fluctuations caused by the disputes between Trump and Musk. Currently, the market's biggest focus has shifted to the game between tariff policies and the path of U.S. monetary policy.
First, regarding tariffs, after months of negotiations, major trading partners excluding China, including the EU, Japan, and South Korea, have basically reached tariff agreements. According to calculations based on the official implementation on August 7, the overall average tariff rate in the U.S. is close to 16.6%, with an actual effective tax rate of about 17.3%, the highest level since the 1930s. It is expected that after implementation, it will rise to 18.3%. This will temporarily push prices up by about 1.8%, which is currently expected to be a one-time impact on the CPI. Based on the average consumption structure, the annual additional expenditure for American households is about $2,400, with clothing and footwear prices potentially rising by nearly 40%, a short-term increase in car prices of 12.3%, and a general rise in consumer goods such as home products.
Moreover, according to the latest ISM Non-Manufacturing PMI, the service sector growth slowed in July, and employment weakened, showing a very clear correlation between inflation pressure and tariff policies. Although the annualized GDP growth rate for the second quarter reached 3.0%, the market is still worried that tariffs may compress consumption in the long term by pushing up costs, which could also lead to a slowdown in investment and thus suppress future economic growth.
The direct impact of tariffs is a short-term price increase of about 1.8%, with single-family households facing an annual additional expenditure of about $2,400, particularly affecting clothing and footwear prices, which may rise by nearly 40%, and a short-term increase in car prices of 12.3%, with various consumer products experiencing different levels of increase. According to the latest PMI data released on Tuesday night, the service sector growth slowed in July, and employment weakened, with significant inflation pressure correlated with tariff policies. The annualized GDP growth for the second quarter reached 3.0%, which is quite good, but due to the suppression from tariffs, the market believes the long-term growth outlook is at risk.
At the specific country level, Canada, as the second-largest trading partner of the U.S., has a close supply chain in automobiles, energy, and agricultural products, making the impact of tariff increases direct and significant. In contrast, although India and Brazil have been heavily taxed, their low share of U.S. imports due to geopolitical factors and energy trading issues means their overall impact on the economy and risk market is limited.
Although tariffs have almost fully landed, their impact on the market has extended to U.S. monetary policy, which also means that the fluctuations in the U.S. risk market in the short term are highly dependent on the sequence and intensity of inflation data and the Federal Reserve's response after the implementation of tariffs.
At this stage, tariffs and the Federal Reserve's monetary policy are actually complementary. The Federal Reserve views tariffs as an important factor influencing its interest rate decisions, and high interest rates also somewhat align with tariffs to suppress import demand and capital outflow, as clearly stated by Powell in several interest rate meetings. Especially during the July meeting, Trump, after inspecting the Federal Reserve building, originally believed he had reached some tacit understanding with Powell, expecting that even if there was no interest rate cut in July, a friendly signal would be released. However, at the July meeting, Powell not only did not show any inclination towards easing but repeatedly emphasized that tariffs would affect the Federal Reserve's decisions.
As a result, the market's expectation of a rate cut in September briefly fell below 50%. The subsequent reversal in market sentiment was mainly due to four events:
First, the non-farm payroll data released last Friday, which showed a downward revision in employment numbers and a rising unemployment rate, raised concerns about economic slowdown. The downward revision of over 100,000 jobs indicates that the job market may be weakening, which directly led Trump to express significant dissatisfaction politically, even claiming that this non-farm data was "political data," prompting him to seek the dismissal of the head of the U.S. Bureau of Labor Statistics.
Second, data released by the New York Fed on Tuesday night showed that total household debt in the U.S. increased by $185 billion to $18.39 trillion in the second quarter, with mortgages rising by $131 billion to $12.94 trillion and auto loans increasing by $13 billion to $1.66 trillion. The overall default rate remained high at 4.4%, and the proportion of overdue student loans increased.
In a high-interest-rate environment, the continued expansion of debt indicates that American household consumption and asset purchases are increasingly reliant on credit. The high overdue rates, especially the rise in overdue student loans, reflect the pressure on the employment quality and income stability of the younger population. This also means that the dual tightening effects of tariffs and monetary policy are being transmitted to the economic fundamentals through employment and household balance sheets, which, combined with the non-farm data, has already raised concerns about the economy. Therefore, in conjunction with the non-farm data, SMI, and New York Fed data, the risk market has shown concerns about the economy.
Third, concerns about economic downturn are also one of the reasons the market is increasing the likelihood that the Federal Reserve may choose to cut rates in September. Especially from the statements of several Federal Reserve officials in the past week, it can be seen that on Monday, Fed official Daly (non-voting member for 2025) stated that although there is still a lot of uncertainty regarding a rate cut in September, she hopes to have more than two rate cut opportunities in 2025 and believes that the current employment situation in the U.S. is not very weak but is on a downward path, maintaining high interest rates is not beneficial for employment.
Last Sunday, one of the Federal Reserve's voting members, Williams, stated that he would enter the September meeting with a very open mind and consider a rate cut. Another non-voting member, Kashkari, also expressed that he felt the labor market was slowing down. Even the very conservative Bostic, who is willing to only cut rates once in 2025, said that if there is data to support it, he is willing to change his mind about only cutting rates once. This indicates that there is still some divergence within the Federal Reserve regarding a rate cut in September, especially with the addition of Waller and Bowman.
The final reason is that last Saturday, Federal Reserve Governor Cook suddenly announced his resignation effective August 8. Cook is one of the voting members of the Federal Reserve and has voting rights in 2025. Moreover, Federal Reserve governors are nominated by the president, meaning Trump can nominate a new governor to replace Cook's voting position. Therefore, regardless of whom Trump nominates, it is likely that this person will carry out Trump's will, which is to support a rate cut. Additionally, with Waller and Bowman clearly aligned with Trump, Trump would have three voting members in support.
Of course, apart from presidential appointments, there are also a series of approval conditions. I checked that the confirmation process for Federal Reserve governors typically takes 3 to 8 weeks from nomination to approval, averaging around 5 weeks. However, since the Senate is currently in recess in August, it is expected that the confirmation process will not start until early September when Congress reconvenes. Therefore, at the earliest, it may be mid to late September before the Senate opens the confirmation process. This means that even if everything goes smoothly, the confirmation may not occur until late September or early October, which would be after the September meeting and only about three weeks before the October meeting.
Additionally, I checked many data points, and from past cases over the decades, even if a governor is confirmed 3 to 4 weeks before a meeting, they usually arrange to vote starting from the next meeting to ensure they are familiar with the processes and background. For example, Powell in 2012 and Brainard in 2014 participated in the next Federal Reserve vote after their confirmations. So if everything goes smoothly, Cook's successor may participate in the October interest rate meeting, but it is more likely that they will only be able to participate in the December meeting.
Therefore, although we currently see high expectations for a rate cut in September, the actual help to Trump is limited. The Federal Reserve has 12 voting members, and after Cook's resignation, there will only be 11 votes in September, resulting in a simple majority. Previously, Cook was a conservative, so the number of those voting against a rate cut has decreased by one. However, since the new governor cannot be in place in time, there will not be an additional vote for a rate cut. Currently, it is known that only three members can vote for a rate cut, and at least three of the remaining eight must agree to cut rates.
Of course, it is still early to say this, as there are still data from July and August. If there is a continued economic decline or the possibility of inflation contracting, then the probability of the Federal Reserve cutting rates in September is still quite high.
- The Main Support for the Risk Market
In the past week, U.S. policies and corporate dynamics in the AI field have provided significant support for U.S. stocks, especially against the backdrop of increasing macro uncertainty. AI has become one of the few sectors capable of providing structural upward momentum. Major tech companies, including Google, Meta, Microsoft, and Amazon, have confirmed in their earnings reports and investment plans that AI infrastructure investment will exceed $350 billion and may even approach $400 billion by 2025. This scale means that even if economic data is under pressure, AI investment itself could contribute nearly 0.7% to U.S. GDP growth, effectively offsetting more than half of the potential slowdown pressure.
On the policy front, the U.S. Congress has once again proposed the "Unleashing AI Innovation in Financial Services Act," which aims to open an AI sandbox environment in the financial sector, accelerating technology application and compliance adaptation. The White House is also promoting AI asset exports and the establishment of open-source standards to reduce institutional friction in industry development. In terms of capital flow, AI and its related sectors, including cloud computing, chips, and software services, continue to attract a large amount of actively allocated funds, forming an independent support effect that diverges from overall market sentiment. Currently, the market generally believes that the valuation expansion brought about by the AI investment wave has even surpassed the direct impact of tariffs and trade policies on U.S. stocks.
The capital expenditure spillover effect brought about by this infrastructure investment, combined with the reduction of uncertainty driven by policies, as well as the synchronous recovery of leading companies' profits and valuations, allows AI to play a role in the current U.S. stock structure as both a growth driver and a defensive pillar. Since cryptocurrencies are highly correlated with U.S. stocks, if the overall U.S. stock market can maintain an upward trend due to the momentum of AI, then at the very least, Bitcoin's performance will not be too poor.
In the past week, the U.S. Treasury market generally trended towards lower yields, with the short end reacting most significantly. The 2-year yield quickly fell after the non-farm data was revised down and the unemployment rate rose, leading to a significant increase in market expectations for a rate cut in September, with pricing almost locking in at least one cut. In contrast, the long end of the yield curve was relatively resilient, with the 10-year yield slightly retreating from 4.23% to around 4.2%. The pace of curve flattening has slowed and signs of steepening have begun to appear, reflecting an increase in investor confidence regarding the medium- to long-term easing path. Behind this trend is a gradual shift of funds towards defense amid macro uncertainty, with the dollar index under pressure. U.S. stocks stabilized against the backdrop of a strengthening bond market, but structural differentiation was evident, overall displaying characteristics of risk-averse capital entering the market while trading on easing expectations.
- Policy Support in the Cryptocurrency Sector
In the past week, U.S. policies in the cryptocurrency sector have continuously released positive signals. The White House, SEC, CFTC, and Congress have all been advancing the regulation and institutional development of digital assets towards a more lenient phase.
On July 30, the White House Digital Asset Working Group released a report calling for Congress to pass a more operational legislative framework that clearly allows exchanges to simultaneously custody and trade digital assets, and recommended that the SEC and CFTC accelerate the establishment of a federal-level digital asset trading market under their existing authority, sending a clear support signal from the executive level.
On July 31, SEC Chair Gary Gensler announced the launch of the "Project Crypto" initiative, aimed at modernizing securities regulations, clarifying which tokens are considered securities, establishing an innovation exemption mechanism, and designing a licensing system for "super apps" that integrate trading, staking, and lending functions.
On August 6, Gensler announced that staff under this initiative had released a formal statement on liquid staking, clarifying that certain crypto asset activities do not fall under SEC jurisdiction. This move directly delineated clearer compliance boundaries for the industry, reducing business uncertainty. More importantly, it cleared the way for the staking of $ETH and $SOL spot ETFs, especially for ETH, where the approval of ETF staking is now just a matter of time, benefiting good ETH.
On August 4, the CFTC announced that it would list spot cryptocurrency asset contracts for trading on registered futures exchanges, aligning with the SEC's regulatory approach to jointly promote the establishment of legitimate trading channels at the federal level.
At the same time, the Trump administration is preparing an executive order to include crypto assets in 401(k) retirement plan investment options, opening the door to a multi-trillion-dollar pension market. This series of actions collectively reflects that U.S. regulators are shifting from "ambiguous regulation" to "institutional guarantees," not only legally providing space for the survival and development of the crypto industry but also paving the way for institutional capital to enter.
- Adverse Factors in the Market
Although some of the macro adverse factors seen earlier have transformed into expectations for a Federal Reserve rate cut, increasing the probability of a rate cut in September, the direct game between Trump and the conservative faction of the Federal Reserve still creates strong uncertainty regarding rate cuts in 2025. Some institutions, including Bank of America, believe that inflation is trending upwards, especially as tariffs increase consumption and inflation, which may lead the conservative faction within the Federal Reserve to maintain a cautious stance.
In the past week, Treasury auctions saw an increase in medium- to long-term buying demand, with investors' willingness to allocate long-term funds remaining solid against the backdrop of expected rate cuts. Risk appetite has not increased, with major funds still residing in the bond market. Meanwhile, the Treasury expanded the issuance scale of 5-year and 10-year TIPS. Against the dual backdrop of inflation pressure and high deficits, the pace of bond issuance has not slowed but has continued to ramp up, indicating that the extraction of liquidity from the market through government bonds is ongoing. High levels of bond issuance will directly siphon off some funds from the risk market.
In particular, money market funds and banks tend to allocate funds to government bonds rather than stocks, corporate bonds, or crypto assets in a high-interest-rate environment. This diversion effect has the most direct impact in the current macro environment, reducing investment in the risk market. To put it bluntly, the bond market is "siphoning" off from the risk market, and this situation will only change when monetary policy genuinely shifts towards easing.
In the cryptocurrency sector itself, there has been frequent activity from ancient whales over the past month. After a sale of 80,000 coins last week, there have been several transfers from ancient whales this week. Although these transfers did not directly lead to OTC or exchange sales, the previous experience has caused some investors to feel panic. However, to be honest, if it is merely the sale of ancient whales, it will not change the medium- to long-term market trend.
Even if it causes some short-term market impact, as long as the market narrative does not change, it can bounce back just as easily.
From a data perspective, the exchange inventory data over the past week has not been very friendly. When the decline began last Friday, over 15,000 BTC were transferred to exchanges. In nearly a week, the consumption of exchange inventory has been very limited. As of now, there are still over 14,000 BTC that were transferred in last week still sitting on exchanges, indicating that current purchasing power may not be sufficient to absorb the incoming inventory.
Moreover, as we mentioned last week, the inventory of BTC transferred to Binance, OKX, and Bybit still has a significant portion that has not been consumed. From the detailed data, since the sale by ancient whales began last week, there are still over 8,000 BTC that have not been digested in these three exchanges, with only Coinbase maintaining a buying sentiment.
This also indicates that the current purchasing power is still primarily from U.S. investors and those in U.S. time zones, while Asian investors have not only failed to increase their purchasing power on exchanges but have also shown more obvious signs of selling.
In fact, it is not just exchanges; even in the data for BTC spot ETFs, there has been a noticeable decline in purchasing power over the past week, with net outflows observed for three consecutive working days, and the outflow volume has been quite high. Combined with the macro information mentioned earlier, expectations of economic slowdown have led to pessimistic sentiments among investors, including BlackRock, and this sentiment reversal currently relies on Trump.
If Trump cannot address investors' concerns about the economy, not only Bitcoin but also the performance of U.S. stocks may not be very favorable. As of the close on Tuesday, U.S. stocks averaged a decline of over 0.5%. Therefore, on Wednesday morning, Trump released a lot of information to the market, including that the next president might consider Vance as a candidate. This was to balance Trump's erratic statement on Tuesday night about possibly running for election again. Trump has previously made statements about running for election again twice, each time leading to a decline in support.
Additionally, Trump announced early Wednesday that he might distribute dividends to the American public, which instantly reminded the market of the massive monetary easing in 2021, providing the most direct stimulus to the market. Next, it will depend on whether investors buy into Trump's words and actions after the U.S. stock market opens.
We also need to pay attention to whether the number of sell-offs entering exchanges has been increasing recently, as this will greatly help us assess investors' holding sentiment. From the data, although there has indeed been an increase in sell-offs compared to the first half of the year, there has been a slight decrease compared to the previous two weeks, indicating that investors' selling pressure is gradually decreasing and their sentiment is shifting from selling back to holding.
However, correspondingly, the data on withdrawals from exchanges, which represents purchasing power, is also continuously declining. This indicates that investors' purchasing sentiment has not only failed to improve but has actually decreased. It is important to note that we previously analyzed that the rise in BTC prices over the past year has been more due to a reduction in sell-offs rather than a significant increase in purchasing power. Now that sell-offs are increasing and purchasing power is decreasing, this is the main reason hindering the rise in BTC prices, and the solution still requires Trump to convey strong confidence to the market.
Next, we look at the data for long-term holders who have held for over a year, which has historically never been wrong. Although the data has been somewhat unstable in the past two days without obvious distribution signs, it has been in a distribution state for the past week. Considering the current price trend, even if there is a turning point, it will likely provide a longer period of consolidation. From the data of long-term BTC holders, it may still be a bit early to say that we have entered a bear market for BTC.
From the BTC holding data over the past week, compared to last week, it is more evident that high-net-worth investors holding over 10 BTC are very slowly maintaining an increasing position. Even after excluding the increase in exchange inventory, it is still observed that high-net-worth investors have not entered a selling state, while small-scale investors holding less than 10 BTC have shown a very obvious increase in holdings, actively bottom-fishing during the two weeks of decline.
From the funding data, there are no signs of deterioration. The market capitalization of major stablecoins USDT and USDC has not shown significant decreases. Especially since we know from various data that U.S. time zones and U.S. investors are the main contributors to cryptocurrency purchasing power, USDC is a key focus. The market capitalization of USDC has remained relatively stable with a slight upward trend, indicating that more fiat funds are flowing into stablecoins, increasing the upper limit of purchasing power.
Moreover, from the amount of funds entering exchanges, it is evident that the amount of USDC entering exchanges is somewhat higher. From the overall trend, although the inflow volume has decreased compared to the previous two months, it has maintained around the moving average for both USDT and USDC in comparison to the first half of the year. Particularly, the purchasing power of USDC is still at a relatively high level, and U.S. investors have not shown signs of giving up.
Finally, the URPD data from the past week has once again proven the effectiveness of the URPD data. The gap of $114,000 from last week and the gap of $112,000 from this week have both been filled. Now, there are no gaps left in the URPD. Filling gaps is inevitable for URPD; it is just a matter of time. Additionally, the current support level remains relatively stable, as it has not fallen below $111,000 even during significant price fluctuations, indicating that there is still strong consensus among investors around the $110,000 mark.
In the past two weeks, the reduction at $103,500 and $108,500 has been gradually decreasing, with investors in this range gradually shifting from short-term to medium- to long-term positions. Consequently, the stability of this position will be higher. There is no need to focus on breaking the $100,000 support for now, as the outflow data from this part is lower and more stable.
Overall, we are still neither in a typical bull market nor a typical bear market. With Trump's support, U.S. stocks are performing well due to the development of AI. Trump's increased investment in the AI industry also signals to the market that AI is currently the best risk asset and safe haven asset. BTC, which is highly correlated with AI and tech stocks, is unlikely to perform poorly. Additionally, BTC and cryptocurrencies also have Trump's political support, with the SEC, CFTC, and even Congress all giving the green light.
However, this support is more for compliant cryptocurrencies, with BTC and stablecoins being among the beneficiaries. ETH also has significant opportunities, but other assets that have not yet passed spot ETF approvals and those not yet recognized by mainstream traditional markets still carry higher risks.
The upcoming game between Trump and the Federal Reserve's monetary policy will be a key factor influencing market changes.
Related Articles: U.S. Cryptocurrency Policy "Three Arrows Released": Comprehensive Easing of Spot Trading, Stablecoins, and Anti-De-Banking
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