This article is reprinted with permission from Phyrex_Ni, and the copyright belongs to the original author.
This week is slightly more complex than before. Although the most important interest rate meeting has concluded, the aftereffects of the meeting still leave the market full of uncertainties. The 25 basis point rate cut in September was within our expectations, but there is a slight change in the dot plot for the remaining rate cuts in 2025, where there is still a very slight possibility of a 50 basis point cut. This means there is a chance for rate cuts in both October and December, providing the market with a breather.
However, the outlook for rate cuts in 2026 is less favorable, with only one expected cut, which is a reduction from June's expectations. While there is one more cut in 2025, it is important to note that May 2026 is when Powell is expected to leave office. Before that, the Federal Reserve has three more meetings scheduled in January, March, and April, and it is possible that there will be no rate cuts during these three months. Considering Powell's departure, Trump will certainly not miss this opportunity, so it is likely that Powell's successor will appear at the Federal Reserve sooner.
Therefore, the market's prediction may be that the first quarter of 2026 will be relatively tense, but starting in the second quarter, it may gradually move towards easing. After all, this is a situation in 2026, and the uncertainty is high. However, the two rate cuts in 2025 are currently the most likely to occur, so although the market experienced a short-term adjustment after the interest rate meeting, it quickly rebounded. The main reason for this is the expectation that there will still be two rate cuts in 2025.
After the interest rate meeting, the market's expectation for a rate cut in October rose to 91.9%. Overall, the market performance was relatively stable, but the cryptocurrency market saw a significant decline starting Monday. Additionally, the three major futures in the US stock market also fell, and this divergence easily brings to mind Trump's new H-1B policy, which requires employees obtaining H-1B visas after September 21 to pay an additional $100,000, which can almost be seen as a "personal tariff." As a result, the price of flights from India to the US doubled around the 21st, as India is the largest source country for H-1B visas.
The H-1B policy has amplified market uncertainty on an emotional level. Even Jamie Dimon, CEO of JPMorgan, mentioned that Trump's new H-1B visa policy caught everyone off guard, and JPMorgan received a large number of calls over the weekend, which is likely one of the catalysts for the cryptocurrency market's weakness on Monday. There are three main reasons for this:
First, technology companies are the primary users of H-1B visas, and AI is currently at the core of tech stocks. For small and medium-sized tech companies, the additional cost of $100,000 is very burdensome. For example, if a startup wants to hire 20 H-1B engineers, it could increase costs by $2 million, equivalent to the size of a seed funding round. This burden could directly impact talent acquisition and R&D progress.
Second, this increases policy uncertainty. Uncertainty often causes more anxiety in the market than direct bad news. Trump is currently handling immigration issues more from a political perspective, but immigration is actually a crucial support for the US economy and employment. Even Powell acknowledged the close relationship between immigration and employment in his speeches. Not to mention the real estate market, which also relies on the labor and demand brought by immigration. Trump's policy may exacerbate the difficulty of attracting mid-level talent in the US tech industry, further amplifying market concerns.
Third, this is not the first time. In 2020, Trump also implemented similar restrictive policies, and at that time, the market reacted with a "preemptive drop." History often repeats itself at sensitive moments, and the situation in 2025 is quite similar. Especially against the backdrop of already pressured employment, such sudden uncertainty will have a more pronounced impact on risk markets.
Of course, whether or not the H-1B policy is the direct cause of Monday's decline, it is not the main contradiction in the current US economy. The real core game still lies between Trump, interest rates, tariffs, and broader geopolitical issues. The H-1B policy merely amplifies short-term unease, but the long-term direction of the market still depends on these larger factors.
Regardless of whether the H-1B policy catalyzed the decline in the cryptocurrency industry, the US stock market performed very well after opening on Monday, showing no signs of being affected by the H-1B policy. The main reason is that tech stocks received a series of positive news, including developments related to TikTok, increased shipment expectations for Apple, and Tesla's stock rise due to Musk sitting down with Trump again. Even Nvidia's investment in OpenAI contributed to positive expectations. Among the "seven sisters," three stocks rose while the remaining four saw slight declines, leading to a nearly 0.5% increase in QQQ, likely temporarily alleviating concerns about the H-1B policy.
However, on Monday evening, Powell's speech at the economic conference once again led the market into a downward trend. Powell mainly elaborated that the current US economy shows resilience amid severe adjustments in trade, immigration, fiscal regulation, and geopolitics, but growth momentum is clearly weakening. The GDP growth rate in the first half of the year was only 1.5%, a significant slowdown from last year's 2.5%. Consumer spending is cooling, and the real estate market remains weak. Although corporate investment in equipment and intangible assets has slightly rebounded, overall confidence remains insufficient. Feedback from the Beige Book indicates that uncertainty has become a major factor suppressing corporate expectations.
The situation in the labor market is even more delicate. On the surface, the unemployment rate remains low at 4.3% in August, but this has already increased from previous levels, with the unemployment rate rising by nearly 1% over the past year, and job growth has almost stagnated. Over the past three months, non-farm employment has averaged only 29,000 new jobs per month, below the "break-even" level needed to maintain a stable unemployment rate. This indicates that both labor supply and demand are cooling simultaneously, a rare and tricky situation that typically only occurs during economic recessions. The overall trend shows an increasing risk of job market decline.
Inflation is also not looking optimistic. Over the past year, PCE inflation has risen to 2.7%, with core PCE reaching 2.9%, both higher than the same period last year. The rebound in commodity prices is the main driver, and the logic behind this is directly related to tariff increases. In other words, the current rise in inflation is more of a one-time price level adjustment rather than a widespread overheating of demand. However, this one-time shock will gradually manifest through the supply chain over multiple quarters, keeping short-term inflation data elevated. This is also the reason for the overall upward expectations in the market and short-term inflation indicators.
Therefore, Powell believes that in this context, the Federal Reserve's strategy will face a dilemma. If they overly loosen, it may undermine anti-inflation achievements; if they maintain a tight stance, it will further impact the labor market. Powell emphasized that the recent rise in job market decline risks has shifted the risk balance, which is why at the last meeting, the Federal Reserve decided to adjust its policy stance to a more neutral range, resulting in a 25 basis point rate cut, which was also a signal of concern about risks in the labor market.
When responding to the host's questions, Powell did not show any dovish attitude. When asked about the two rate cuts after 2025, Powell did not provide a fixed path for the future but reiterated that they would continue to rely on data and risk assessments to determine the next steps. This means that the future policy direction is not predetermined; whether to continue cutting rates or maintain rates will depend on the dynamic changes in employment and inflation.
Thus, through Powell's second explanation, it can be confirmed that the US economy is slowing down, the labor market is weakening, and inflation is rebounding due to tariff disturbances. The Federal Reserve has chosen a slight rate cut to ease the risk balance but remains cautious, indicating that the risk of economic downturn is rising. Moreover, Powell repeatedly emphasized the relationship between immigration and labor, which may have once again awakened concerns about the H-1B policy, leading to declines of over 0.5% in the S&P and Nasdaq after Powell's speech.
Interestingly, the market's expectation for a rate cut by the Federal Reserve in October not only did not decline but actually rose from 91.9% before the meeting to 94.1% currently. This suggests that the reason for the evening's decline is likely not due to market concerns about the Federal Reserve's rate cut in October, but rather worries that a delayed rate cut could trigger a collapse in the labor market, potentially leading to a recession in the US economy. If the decline is merely due to economic concerns, then in my personal view, the market's downturn may not be very significant.
After the September interest rate meeting, several Federal Reserve officials expressed their views on interest rates for 2025. Bostic (a non-voting member for 2025) stated that he does not see room for further rate cuts at this time and believes that one rate cut in 2025 is sufficient. Another official, Musalem (a voting member for 2025), indicated that if inflation risks rise further, the room for continued rate cuts is limited, and factors such as a loose financial environment mean the Federal Reserve should cautiously advance further rate cuts. The newly appointed Milan (a voting member for 2025) did not actively discuss future monetary policy but still supports significant rate cuts, stating that the reasonable range for the Federal Funds rate is about 2% to 2.5%. Goolsbee (a voting member for 2025) believes that the neutral rate should be 100-125 basis points lower than the current level, theoretically leaning towards a neutral dovish stance, while Bowman (a voting member for 2025) believes that the Federal Reserve faces serious lagging risks and will need to accelerate the pace of rate cuts if the labor market continues to deteriorate.
Overall, Federal Reserve officials still have strong uncertainty regarding the last two rate cuts in 2025, which again validates Powell's statement that further data is needed to make decisions. It also provides a clear judgment: if the unemployment rate rises and labor employment declines, the likelihood of rate cuts will increase; if inflation decreases, the likelihood of rate cuts will also increase, but the labor market's impact may be more significant.
Additionally, today there has been a lot of discussion about the SEC's innovation exemption, which is worth mentioning in the weekly report. First, this innovation exemption is aimed at DeFi, but according to the SEC's definition, DEX and Perp DEX are also considered part of DeFi. So from a broad framework perspective, the innovation exemption does indeed apply to DEX and Perp DEX.
However, this does not mean that DEX or Perp DEX can develop freely without any regulations. The SEC explicitly mentioned in the "Project Crypto" document that it is exploring a possible innovation exemption that allows companies to adopt new models without fully complying with existing regulations, provided they meet principle-based conditions to achieve the core policy goals of securities law. In other words, this exemption is still a relaxation within the framework of securities law, rather than an exemption outside of it. For example, issuing stablecoins that do not meet securities law requirements is still not possible; while certain token-like stocks may attempt limited issuance, 100% fully securitized tokens are still not allowed.
More importantly, this innovation exemption has not yet been fully implemented, and many details are still undecided. It is expected that a specific plan will not be available until December of this year at the earliest. Even if it is launched, it may only be a pilot or a request for comments, and formal implementation will still take time.
Returning to the reality level, the situation for Perp DEX is more complex. From a regulatory perspective, decentralized perpetual contracts involve leverage, margin, and derivatives, which are inherently high-risk areas. Most Perp DEX operate on-chain without mandatory KYC and AML mechanisms, which are core sensitive points for the SEC and even FinCEN. Therefore, even with an innovation exemption, Perp DEX are still likely to be required to implement KYC/AML mechanisms.
Strictly speaking, this part of regulation is not entirely the SEC's responsibility; it largely falls under the jurisdiction of the Treasury/FinCEN. However, the SEC will not exempt DeFi from these requirements.
In other words, the innovation exemption may allow spot DEX to gain greater flexibility in registration, disclosure, and licensing, but the red line for Perp DEX remains KYC/AML. A more likely future scenario is:
- DEX (spot): Introduce a blacklist mechanism within a compliance framework to gain more space.
- Perp DEX (derivatives): Due to higher risk weights, it is highly probable that they will be fully subject to KYC/AML.
This aligns with the SEC's consistent approach of seeking a balance between innovation and risk, moderately relaxing compliance thresholds while not abandoning core investor protection and anti-money laundering requirements.
Additionally, with Aster's surge in popularity, the overall expectations for Perp DEX have also risen significantly. However, from my personal perspective, Perp DEX primarily address three areas of demand:
- Anti-real-name KYC + AML
This direction is the largest application within DEX. Previously, when only spot trading was available, there were some constraints. Now, the opening of contracts can resolve some non-compliant funding issues through offsetting trades, which I won't delve into further.
- Support for small tokens and high leverage
Some new and speculative tokens may not be immediately supported by centralized exchanges, but DEX do not have such concerns. Even newly listed tokens can be bet on with hundreds of times leverage.
- Transparency and liquidation mechanisms
Many users often accuse centralized exchanges of maliciously manipulating the market. On-chain DEX are more transparent, especially in trading pairs involving smaller tokens.
Of course, there are also aspects like self-custody of funds. I do believe that decentralized exchanges will gradually become mainstream in the market, but this will take time. After Uniswap gained popularity, many people said that DEX would replace CEX, but DEX has not only failed to replace CEX but also still sees better liquidity when tokens are listed on CEX.
One reason is that CEX has a lower threshold, providing a one-stop solution for all steps from deposit to trading to withdrawal. Another reason is that CEX, being subject to legal or social media (reputation) oversight, has a more complete risk warning and compensation mechanism. For instance, extreme events like FTX still provided some level of compensation, backed by legal and regulatory pressure, while DEX has almost no recourse in cases of private key theft. This does not mean that CEX is necessarily better than DEX; rather, under the current circumstances, especially among leading CEX, they still offer the best depth and liquidity.
I have seen many reasons why users choose DEX or Perp DEX, and it largely revolves around support for small tokens and high leverage. Some users can also earn returns through LP mechanisms. Conversely, traditional CEX tends to perform better in terms of financial returns, and many users use DEX primarily for the expectation of airdrops. These are all quite normal, but there is indeed a current situation where DEX are clustered together. The differences between each DEX are actually narrowing.
As more investors recognize the importance of compliance or branding, the era of disorderly competition has passed for CEX. The sense of security brought by branding is more important, so CEX are more focused on how to "serve" users. In contrast, DEX are competing primarily on "customer acquisition," supporting more small tokens, more chains, and higher leverage, offering more rebates. However, there is still significant room for actual innovation.
The reason many people are discussing DEX or Perp DEX now is not because of their excellent development, but because there is a speculative token willing to surge and a prominent figure willing to shout out. More users feel they have missed a huge opportunity and are looking for a second or third chance to change their fate, rather than because they have fundamentally made innovations. The current DEX are primarily offering the same smoothness, depth, and speed of transactions as CEX. The development of DEX still requires the entry of large amounts of capital, which needs more genuine reasons beyond "special" demands.
I also believe that DEX will be an important direction in the future, but the recent heat is more driven by market opportunities rather than underlying innovations. What will truly drive large-scale adoption will not be higher leverage and more small tokens, but breakthroughs in compliance, capital efficiency, and product innovation. In other words, the future competitive point for DEX will not be who can be more aggressive, but who can combine liquidity and innovation within the framework of regulation and user trust.
Finally, let's return to on-chain data.
First, the stock of BTC on exchanges is decreasing, whether viewed from the data of the past week or the past year. It is evident that the amount of Bitcoin held on exchanges is diminishing, currently reaching the lowest stock value in the past year. Moreover, looking at a longer time frame, this data has also refreshed the lowest stock value on exchanges since January 2021. This indicates that even during recent periods of poor price performance, the buying demand from investors still exceeds the selling demand, which is one reason why BTC prices remain relatively strong.
Additionally, from detailed data, the leading exchanges Coinbase and Binance have both seen varying degrees of reduction in holdings, and even South Korea's UPbit has shown signs of slight reductions. This indicates a high level of consistency in the approach to bottom-fishing BTC, whether in the East or the West.
However, the performance of spot ETF data has not been good. In the previous week, spot ETFs saw a net inflow of over 20,000 BTC, which is not a large number, while the net inflow of BTC from US investors was only over 7,000, a difference of nearly 2.5 times. This indicates that in the past week, the purchasing power of ETF investors, whether in the primary or secondary market, has been relatively low. Although spot trading volume is also declining, BTC has returned to a situation where selling volume is less than buying volume, meaning more investors are entering a reluctant selling situation.
In contrast, the spot ETF data for ETH is slightly better. In the previous week, spot ETFs bought nearly 110,000 ETH, and this number increased to 140,000 in the last week, indicating slightly higher purchasing power in the primary market. However, the purchasing power in the secondary market for ETFs is on par with BTC, and the purchasing power in the spot market for ETH is also quite poor. Additionally, from the data on ETH waiting to be unlocked from POS, the number of ETH waiting to be unlocked has also been rising, which continues to exert pressure on ETH.
The purchasing power brought by spot ETFs is insufficient to sustain an increase in ETH prices; an increase in purchasing power in the spot market is still needed, but currently, this is not evident from the trading volume. Even when comparing the purchasing power of spot ETFs for BTC and ETH, it is clear that investors' funds are primarily entering BTC rather than ETH, which is a stark contrast to previous performance. Therefore, if the purchasing power does not rebound, ETH is likely to experience volatile price swings, leading to much less price stability.
Next, the data on long-term holders of BTC over the past year remains unrefuted. Currently, long-term holders of BTC are still in a distribution phase, which indicates a relatively high price stability for BTC and a potential upward trend. However, after reviewing a large amount of data, this distribution by long-term holders is likely contributing to the reduction in exchange stock. After all, the recent reduction in actual long-term holders has not been significant; rather, the stock on exchanges is indeed decreasing. However, the uncertainty of this data remains high and can only serve as a reference. The main contention still lies in the Federal Reserve's monetary policy.
Next is the distribution data of BTC holding users over the past two weeks, which remains quite stable. High-net-worth investors holding more than 10 BTC have shown a consistent trend of increasing their holdings, indicating that high-net-worth investors continue to purchase BTC, which is another reason for BTC's price stability. In contrast, small-scale investors holding less than 10 BTC continue to show a trend of reduction. Overall, it seems that small-scale investors prefer to trade in waves, while high-net-worth investors prefer long-term holding.
Additionally, the recent headache regarding the number of open contracts for BTC and ETH has led to discussions that the drop on Monday was the largest liquidation in recent times. However, from the data on open contracts, both BTC and ETH remain at high levels of open contracts, with not much liquidation occurring. This is especially evident when comparing BTC to the beginning of the year. The more open contracts there are, the more leverage is used, leading to greater price volatility for BTC and ETH. Both data points indicate that risk levels remain high, with ETH being at a higher risk.
Finally, regarding BTC's URPD data, it shows that after BTC's price exceeded $100,000, the distribution of chips became more even, and with the price increase, it has increased in a tiered manner. This indicates that the sentiment of most investors is very stable, and even some investors who are trapped at high levels have not shown panic. The holding volume remains very stable, and even after Monday's drop, it can be seen that high-level investors did not significantly reduce their holdings, indicating that the support level remains very solid. Unless there is a systemic risk, the probability of breaking below the support level is low.
In summary, while the risk market is currently quite turbulent, the main contention still revolves around adjustments in the Federal Reserve's interest rates. Trump has become particularly quiet after the interest rate meeting, not expressing any direct views on the Federal Reserve, which feels very uncharacteristic of him. He seems to be waiting for a better opportunity, with two more chances in 2025. The focus should be on inflation and labor data, especially the labor data, which is more critical. This Friday, there will be core PCE data, and market expectations are relatively good. If it meets or falls below expectations, it will help market sentiment, especially as it is data released before the weekend.
Related: Crypto Biz: Wall Street begins a new cycle, with banking services, stablecoins, and asset tokenization advancing simultaneously, accelerating overall development.
Original text: “The Aftermath of Rate Cuts: Interest Rate Games, H-1B Policies, and Turbulence in the Crypto Market”
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