In the future, if U.S. Treasury yields remain high and the dollar continues to strengthen, short-term pressure will still exist; however, if ETF funds resume inflows and the derivatives structure improves, there will still be opportunities for a rebound in the fourth quarter's "upward October" and year-end market.
Summary
Federal Reserve Chairman Jerome Powell emphasized after the 25 basis point rate cut in September that U.S. monetary policy remains in a delicate balance: on one hand, inflation has fallen close to the target but still faces sticky risks; on the other hand, employment growth is slowing, and signs of weakness in the labor market are gradually emerging. This "dual risk" allows the Fed to retain flexibility in its future rate cut path, but it emphasizes that it will not act blindly or aggressively. On a macro level, the U.S. economy shows resilience, with GDP growth and consumption still providing support, but the combination of fiscal deficits and debt pressure alongside a strengthening dollar keeps financial markets cautious. In the past week, the crypto market experienced severe volatility. A liquidation event on Monday led to over $1 billion in leveraged long positions being liquidated, with BTC prices quickly dropping from above $115,000 to around $112,000, and ETH briefly falling below $4,100, while SOL and altcoins also generally declined. Coinglass data shows that the total liquidation across the network reached $1.7 billion in 24 hours, setting a new high for the year. The funding rates in the derivatives market have returned to neutral, with skew indicating strong demand for put options, and ETF fund flows showing divergence. Whales significantly cashed out in the ETH market, further exacerbating downward pressure. Overall, this round of volatility reflects the crypto market's high sensitivity to macro liquidity and derivatives leverage. The rate cut has not supported the crypto market in the short term, as the market had already priced in the positive news and entered a "good news fully priced" adjustment period. In the future, if U.S. Treasury yields remain high and the dollar continues to strengthen, short-term pressure will still exist; however, if ETF funds resume inflows and the derivatives structure improves, there will still be opportunities for a rebound in the fourth quarter's "upward October" and year-end market.
I. Current Macroeconomic Overview
Powell further emphasized in recent speeches that the Fed's stance remains relatively tight after the rate cut, believing that the current interest rate level "is still slightly above neutral," which means that even after taking easing measures, the overall financial environment still has the effect of suppressing inflation. He specifically mentioned that there is "room for further adjustment" in policy, but it will not preset a path, instead acting flexibly based on future employment and inflation data. This statement reinforces the market's perception of "gradual easing," weakening expectations for excessive easing, while also leaving room for market speculation in the fourth quarter. Previously,
The Fed decided to cut rates by 25 basis points at the September meeting, marking a significant shift in monetary policy since the beginning of this tightening cycle. The market had already formed high expectations for this action, but Chairman Powell's subsequent remarks conveyed a more complex message than just a simple rate cut. He repeatedly emphasized the existence of "dual risks": on one hand, if signs of weakness in the labor market continue to deepen, the Fed may need to further release easing to prevent the unemployment rate from rising too quickly and damaging the long-term growth potential of the economy; on the other hand, if inflation shows signs of reversal after approaching the target, monetary authorities also need to remain vigilant to avoid excessive easing leading to a resurgence in price levels. Powell acknowledged that even after the rate cut, the Fed is still "in a favorable position," which means policymakers want to retain flexibility and are unwilling to let the market bet on a rapid unilateral path of easing.
The backdrop for the rate cut is the multiple pressures that the U.S. economy has faced over the past year. On one hand, consumption and employment performance have gradually slowed, especially the growth rate of new jobs in the labor market, which is significantly lower than the high levels of the previous two years, reflecting a decline in companies' willingness to hire. On the other hand, although the inflation rate has significantly fallen from the peaks of 2022, core inflation indicators still show resilience. The Personal Consumption Expenditures (PCE) price index in August rose 2.7% year-on-year, up from 2.3% in July, indicating that the sticky pressures driven by the service sector and wages have not completely dissipated. In this context, the Fed's rate cut is not a traditional "market rescue," but rather a strategic operation: by slightly releasing easing signals, it aims to prevent excessive tightening of financial conditions from causing a secondary shock to the labor market, while also reminding the market that the policy path still depends on subsequent data rather than a definitive shift. Powell's emphasis on "dual risks" is a concentrated reflection of the current macroeconomic uncertainty. The so-called "dual risks" mean that in monetary policy operations, it is necessary to prevent rising unemployment caused by economic downturns while also preventing inflation from repeatedly undermining price stability. This framework requires decision-makers to remain highly data-dependent, making the policy path more gradual and flexible. In other words, the Fed's goal is to maintain a "defensive balance": preventing the economy from falling into recession too quickly while also avoiding any wavering of the inflation target. This approach differs from the unilateral tendency of "forward guidance" policies in the past few years, resembling a more pragmatic stance that emphasizes adaptability.
In terms of employment, recent data indeed indicates that the labor market is gradually cooling. Employment growth has been below the long-term trend for several months, with indicators of job vacancies and labor participation rates both declining, suggesting that the supply-demand relationship in the labor market is returning from a previous "overheated" state to a near-equilibrium or slightly weak state. Powell acknowledged in his speech that the slowdown in employment growth means there may be upward pressure on the unemployment rate in the future, and if this trend worsens, monetary policy must provide greater support. Meanwhile, wage growth remains at relatively high levels, which creates some inertia in service sector inflation. Therefore, the policy layer is in a delicate position: it must prevent excessive contraction on the demand side while also controlling the inflation risks driven by costs. This situation explains Powell's emphasis on a "slight easing tendency" rather than a major shift. From an inflation perspective, the overall price level in the U.S. has significantly fallen over the past two years, but core service inflation remains strong, especially in areas like housing, healthcare, and education, which show lagging effects. Powell acknowledged that there is uncertainty in the improvement of the inflation path, and short-term data fluctuations should not be seen as turning points for long-term trends. This means that even after the rate cut, the Fed will remain cautious in the coming months and will not immediately enter a rapid rate-cutting cycle, but will gradually release space based on data. In other words, the rate cut is more of an "insurance-style" adjustment rather than a strong pessimistic statement about the economy. In terms of growth, the U.S. economy has shown some resilience this year. The GDP growth rate in the second quarter remained around 2.5%, although lower than the highs of the past two years, it is still above potential growth levels. Consumption expenditure remains a major driver, with the household sector benefiting from income growth and some release of savings, maintaining a certain level of purchasing power. However, corporate investment is slowing, and the manufacturing purchasing managers' index is hovering around the line of expansion and contraction, indicating that the impacts of weak global demand and tightening financial conditions are gradually becoming evident. On the fiscal side, the U.S. federal government's deficit level remains high, and the debt-to-GDP ratio continues to rise, with limited fiscal space, meaning that future stability will rely more on monetary policy. In this context, Powell's cautious tone in his speech becomes particularly important: the Fed needs to avoid the combination of its own policies with fiscal vulnerabilities, which could lead to market instability.
From a global macro perspective, the U.S. rate cut is not an isolated event but is closely related to global economic trends. European economies have been troubled by energy shocks and declining industrial competitiveness in recent years, with the Eurozone experiencing continued weak growth. Although inflation is gradually falling, it remains at high levels, and the European Central Bank's policies face dilemmas. In China, economic growth is maintaining a moderate recovery under policy stimulus, but the recovery of consumption and investment is still uneven, and the real estate market remains under pressure. Emerging markets are under pressure in an environment of a strong dollar and high interest rates, with increased risks of capital outflows and currency depreciation. Therefore, any adjustments by the Fed not only impact the U.S. domestic economy but also exert strong spillover effects on external economies through the dollar and global financial conditions.
The trends of the dollar and U.S. Treasury yields are particularly critical recently. After the rate cut in September, the yield on the U.S. 10-year Treasury bond briefly fell to around 4%, but after the market reabsorbed the policy signals, it hovered around 4.1%, indicating that long-term rates are still constrained by supply-demand dynamics and inflation expectations. The dollar index strengthened in the new week, reflecting that global capital still favors dollar assets as a safe-haven allocation. This combination has a chain effect on global financial markets: on one hand, the limited decline in Treasury yields means that financing conditions remain tight; on the other hand, a stronger dollar puts pressure on emerging markets, increasing external uncertainties. For the crypto market, this macro environment means that it is difficult to gain unilateral liquidity support in the short term, relying more on adjustments in internal market leverage and fund flows.
The linkage between macro and financial conditions is the core to interpreting the current situation. The financial conditions index shows that although the Fed has begun to cut rates, interest rates remain at relatively high levels, and the alleviation of overall conditions is limited by credit spreads and stock market valuations. The marginal improvement in liquidity is more achieved through an increase in market sentiment and risk appetite rather than a substantial decrease in costs. This pattern indicates a certain misalignment between macro policies and financial markets: policies release easing signals, but the market may not be able to immediately translate this into an actual easing financing environment. Coupled with the long-term presence of fiscal deficits and geopolitical risks, financial markets remain cautious in interpreting Fed policies. This is also why Powell's speech emphasizes "flexibility," as he needs to manage both inflation expectations and market expectations simultaneously to avoid volatility caused by unilateral bets.
Overall, the policy logic released by Powell's speech can be summarized in three points: first, the rate cut is a forward-looking response to the weakness in the labor market and the risks of economic downturn, but the scale is limited, aimed at providing "insurance" rather than comprehensive easing; second, achieving the inflation target will take time, and the Fed is unwilling to prematurely abandon tightening results due to short-term data fluctuations; third, global financial conditions are complex and variable, and the trends of the dollar and U.S. Treasuries determine whether policy effects can be transmitted to the market. On the macroeconomic level, the U.S. still shows relative resilience, but slowing growth, fiscal pressures, and external environmental uncertainties require policymakers to maintain balance. The divergence among major global economies further increases spillover effects, making every move by the Fed impactful on global markets. In the next one to two quarters, the interplay between macro and financial conditions will become a key external variable influencing the trends of the crypto market.
II. Crypto Market and Macroeconomic Outlook
In the past week, the most prominent feature of the crypto market has been the concentrated liquidation of leverage and the rapid release of risk. In the previous weeks, driven by optimistic sentiment regarding the Fed's impending rate cut, the prices of Bitcoin and Ethereum continued to rise, and the open interest (OI) in the derivatives market rapidly accumulated, with high-leverage funds flooding in, leading to clear signs of market exuberance. However, Powell's latest remarks emphasized that the path of monetary policy involves "dual risks," meaning that the future pace of rate cuts is not unilaterally determined but may be constrained by both inflation reversals and economic downturns. This statement quickly dampened the overly optimistic risk appetite, leading to a sharp reversal in market sentiment. As a result, the total liquidation across the market exceeded $1 billion in a single day, particularly as ETH leveraged positions faced concentrated liquidations at key support levels, triggering a chain reaction. It is noteworthy that this round of liquidation was not solely a long squeeze; some short positions were also passively exited during the market rebound, highlighting the double-edged sword effect of high leverage in the derivatives market. While the clearing of leverage has intensified short-term volatility, it also contributes to a healthy reset of market risks in the medium to long term, building momentum for subsequent trends. Historical experience shows that each liquidation wave often precedes a phase bottom or top, and this may also lay the groundwork for the next round of market activity. Coinglass data indicates that on September 22, a total of 406,200 people in the cryptocurrency market were liquidated, with a total liquidation amount reaching $1.678 billion. Among them, long liquidations amounted to $1.595 billion, while short liquidations were $83.435 million.
In the spot market, Bitcoin briefly fell below key technical levels after the liquidation wave but did not enter a freefall. On-chain data shows that whale addresses exhibited clear accumulation signs around the $45,000 mark, with long-term funds gradually buying in, forming strong support below and helping the market stabilize quickly. In contrast, Ethereum showed weaker performance, partly due to a higher leverage ratio in the derivatives market for ETH, amplifying volatility; on the other hand, the staking ecosystem post-Shanghai upgrade has entered a balancing phase, making ETH more sensitive to macro disturbances. Other mainstream tokens like SOL and TON have maintained investor interest, but their short-term trends still follow the rhythm of BTC and ETH, not yet breaking out into independent movements. Overall, the core logic of the market this week is that a reversal in macro expectations led to leveraged liquidations, followed by long-term funds providing a floor at lower levels, pushing the market into a phase of consolidation and bottoming.
The microstructure of the derivatives market further reveals changes in funding sentiment. Before the liquidation wave, funding rates had significantly turned positive, indicating that bullish leverage expectations had been pushed to high levels; however, after the liquidation, funding rates quickly fell back and even turned negative at times, showing that excessive optimism was being suppressed. In terms of basis, the premium of futures relative to spot significantly narrowed after the event, even briefly turning into a discount, indicating a more cautious shift in funds and an increased aversion to medium- and long-term risks. In the options market, skew indicators show a significant increase in demand for put options, with investors increasing their allocation for downside protection, reflecting a rise in risk-averse sentiment. Meanwhile, with large-scale options expirations, the Gamma effect has intensified short-term volatility, forcing market makers to dynamically hedge, driving rapid changes in spot and futures prices. This series of feedback mechanisms in the derivatives market has amplified price volatility but also accelerated the clearing of leverage, creating conditions for emotional recovery.
ETF fund flows and whale movements have become another major observation point in the market this week. Daily fund inflows into Bitcoin spot ETFs have significantly decreased, with some trading days even showing slight net outflows, indicating that institutional funds are choosing to wait and see amid increasing macro uncertainty. However, cumulative positions have not significantly decreased, and long-term fund allocations remain stable. On-chain monitoring shows that some large addresses have continued to accumulate in batches during the market's sharp decline, a pattern reminiscent of behaviors seen at the end of 2023 to 2024. The coordinated actions of institutional funds and whales often serve as a barometer for mid-term trends, so their current steadfastness and accumulation at low levels further reinforce the logic of market consolidation and bottoming. From a market structure perspective, the spot market remains the foundation for pricing, while the leverage fluctuations in futures and options amplify short-term price movements. This week, leveraged positions significantly decreased after the liquidation, re-establishing the decisive role of spot prices. This change indicates that the market is returning to a healthier structural state. In the coming weeks, the market may be in a dynamic balance of "leverage clearing—spot support—institutional wait-and-see," making it difficult to see a unilateral trend in the short term, but building strength for mid-term movements.
The macro environment is key to influencing medium- and long-term trends. The Fed's rate cut expectations have been an important logic driving the rise of crypto assets, as low interest rates mean lower funding costs and a rebound in liquidity, which benefits high-risk assets. However, Powell's remarks clearly remind the market that rate cuts are not a one-way process, and monetary policy may be adjusted at any time due to inflation or growth paths. This signal caused the dollar index to stabilize after the speech, and long-term rates did not significantly decline, thereby weakening the market's excessive optimism about liquidity easing. In this context, the funding flow logic in the crypto market has encountered disturbances, leading to significant short-term pressure. Historically, the crypto market is far more sensitive to dollar liquidity and interest rate environments than traditional risk assets, as it lacks stable cash flows and valuation anchors, relying almost entirely on external capital flows. Therefore, fluctuations in rate cut expectations will become a dominant variable for future market trends. Inflation factors also pose a dual impact on the crypto market. If inflation falls, expectations for interest rate declines will increase, leading to a rise in risk appetite, which is favorable for the valuation expansion of crypto assets; if inflation reverses, investors may worry about prolonged high interest rates, leading to a decrease in risk appetite and a return of funds to safe-haven assets like the dollar and bonds. Currently, while U.S. inflation has generally fallen, sticky inflation related to services and housing still exists, combined with global energy price fluctuations, leading to insufficient confidence in the market regarding "complete control of inflation." This uncertainty makes it difficult for the crypto market to form a lasting unilateral trend, with investor sentiment oscillating repeatedly. More fundamentally, the crypto market is characterized by high beta and liquidity sensitivity. Unlike traditional stock markets, the crypto market lacks a cash flow discounting valuation system, with prices primarily determined by capital flows. The net inflow of ETFs, whale buying and selling behaviors, and changes in derivatives leverage positions are indicators at the funding level that often explain market movements better than narratives or fundamentals. In the current context, the uncertainty of rate cut expectations and inflation reversals further amplifies the market's dependence on capital flows. As long as there is no substantial improvement in dollar liquidity, it will be difficult for the crypto market to break out into independent movements. However, this liquidity dependence also means that once the macro environment shows positive turning points, funds may flow back at a faster pace, ushering in a new round of rapid upward cycles for the crypto market. For this reason, the market appears weak in the short term but still possesses explosive potential in the long term.
In summary, the overall logic of the crypto market this week can be summarized in three layers. On a short-term level, leveraged liquidations and reversals in policy expectations have led to severe volatility, but spot funds and whale accumulation have prevented systemic declines. On a mid-term level, the slowdown in ETF inflows and macro uncertainty have put funds in a wait-and-see state, leading the market into a phase of consolidation and bottoming. On a long-term level, the crypto market remains deeply reliant on global liquidity and interest rate environments; once the rate cut cycle becomes clearer or inflation pressures ease, funds are expected to flow back quickly, driving a new bull market. In the coming weeks, the key variables for the market will be: first, the actual direction of the Fed's policy path and dollar liquidity; second, the rhythm of reflows from institutional funds like ETFs; and third, whether whales and long-term funds continue to accumulate. In this process, investors need to be wary of the risks brought by short-term leverage fluctuations while also paying attention to the intersection of macro and capital flows, as this is the core force determining the trends in the crypto market.
III. Opportunities and Challenges
As we enter the fourth quarter, the global macro and crypto market landscape will continue to intertwine and evolve. The Fed has taken its first step in cutting rates, but the policy path remains full of uncertainty, with subtle changes in inflation and employment data influencing the tightness of monetary conditions. Meanwhile, the strong dollar and high U.S. Treasury yields keep the global risk asset environment cautious. For the crypto market, this means there are new opportunities as well as structural challenges. Investors need to position themselves along both macro and micro lines, capturing positive factors of capital flows and application expansion while hedging against potential external volatility and market vulnerabilities.
In terms of opportunities, first, the logic of ETF expansion continues. Over the past year, Bitcoin and Ethereum spot ETFs have been approved in the U.S. and European markets, gradually becoming the core channel for institutional investors to enter the crypto market. Although short-term capital flows may fluctuate, the role of ETFs as a medium- to long-term capital absorber is gradually becoming evident. Once the Fed's policy path becomes clearer and risk aversion weakens, the continuous net inflows into ETFs will provide solid support for BTC and ETH. Historical experience shows that sustained inflows from ETFs can not only improve market liquidity but also reshape the investor structure, reducing the market's reliance on leveraged funds, thereby pushing the market towards a healthier mid-term trend. Second, institutional entry remains a long-term engine driving industry development. As the policy and regulatory environment gradually clarifies, more and more traditional financial institutions are exploring allocations in crypto assets and blockchain-related products. From asset management companies to insurance funds, and from corporate treasuries to family offices, the scope of institutional demand is continuously expanding. Especially against the backdrop of high valuations in U.S. stocks and fluctuations in bond yields, crypto assets are increasingly seen as an important part of portfolio diversification. If the macro environment stabilizes in the fourth quarter, the accelerated entry of institutional funds could become an unexpected boon for the market. Third, the deepening of blockchain applications provides fundamental support for the market. Over the past two years, decentralized finance (DeFi), on-chain derivatives, stablecoins, and the tokenization of real-world assets (RWA) have rapidly developed, enhancing on-chain capital efficiency and gradually intersecting with traditional financial markets. Particularly, the growth of RWA has made blockchain an important platform for liquidity and financial innovation. As the Fed's rate cuts open up expectations for global liquidity easing, funds may seek arbitrage opportunities between traditional markets and on-chain markets, injecting vitality into the crypto ecosystem. In the fourth quarter, with technological upgrades and new applications being implemented, the market will have more narratives to support price rebounds.
However, challenges should not be overlooked. First is macro uncertainty. Although the Fed has initiated rate cuts, the future path remains uncertain. If inflation reverses before the end of the year or if the employment market deteriorates again, the Fed may adjust its pace, and the fluctuations in the dollar and U.S. Treasuries will become a continuous source of risk for the market. Global geopolitical uncertainties, fiscal deficit pressures, and uneven liquidity distribution may also exacerbate market volatility in the short term. In this macro environment, the crypto market, as a high-beta asset, often becomes the primary casualty during capital adjustments. Second, regulatory risks remain a shadow hanging over the industry. The U.S. SEC maintains a high-pressure stance on token issuance, stablecoin compliance, and exchange regulation beyond ETFs. Although the European MiCA regulatory framework provides a clearer path, compliance costs may rise for some projects, squeezing profit margins. In emerging markets, capital flows may also fluctuate under ambiguous regulations. This means that the crypto market needs to find a balance between expansion and compliance; otherwise, short-term benefits may be offset by policy disturbances. Furthermore, whale behavior and the market structure's fragility will continue to be sources of short-term market disturbances. Recent large-scale cash-outs by ETH whales are a typical example. Due to limited market depth, the capital operations of a single entity can significantly influence prices, creating "emotional resonance." When the market structure still heavily relies on leverage and derivatives, whale behavior can amplify volatility, undermining investor confidence. Only when ETFs and institutional funds gradually dominate can the market begin to detach from this dependence. Therefore, the crypto market in the fourth quarter is characterized by a "coexistence of opportunities and challenges." On one hand, ETFs and institutional funds provide long-term support, and the deepening of blockchain applications brings structural growth momentum; on the other hand, macro uncertainty, regulatory uncertainties, whale operations, and leverage dependence may trigger fluctuations in the short term. Investors need to switch strategies across different time scales: focusing on risk control and liquidity observation in the short term, while paying attention to value reassessment brought by improvements in capital structure and application expansion in the medium to long term.
IV. Conclusion
In summary, Powell's speech and the Fed's rate cut represent a new phase in macro policy: the policy is no longer unilateral but has entered a gradual balance under the "dual risk" framework. The U.S. economy still shows resilience, but fiscal pressures and sticky inflation prevent the market from fully relaxing. On a global level, the trends of the dollar and U.S. Treasuries determine the funding environment for risk assets, while the crypto market, as a high-volatility asset, will continue to move with this macro backdrop in the short term. The liquidation events of the past week revealed the dual risks of leverage dependence and market structural fragility, but they also released some pressure from the market, clearing excessive leverage and creating conditions for healthier upward movements in the future.
The outlook for the fourth quarter can be summarized in two keywords: volatility and turning point. Volatility arises from macro uncertainty and adjustments in internal capital structures, while the turning point lies in the continuity of ETF fund flows, the gradual entry of institutional funds, and the long-term value brought by blockchain applications. Historical data shows that October is often a strong month for the crypto market; if the macro environment does not present significant headwinds, the market could very well restart a rebound after the clearing. What investors need to do is not to predict every short-term fluctuation but to establish a flexible and robust framework: remain vigilant in the interplay of macro and crypto, and decisively act at the nodes of liquidity and structural improvement. The coexistence of opportunities and challenges is precisely the norm in the crypto market and the source of long-term investment value.
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