The latest Federal Reserve meeting not only revealed the Fed's latest assessment of the current economic environment but also influenced market expectations regarding future liquidity conditions, directly impacting global asset markets, including cryptocurrencies.
I. Interpretation of the Federal Reserve's Meeting: Policy Stability, Market Expectation Adjustments
In its latest meeting, the Federal Reserve decided to maintain the federal funds rate target range at 4.25%-4.50%. This decision aligned with market expectations, but the wording of its policy, economic forecasts, and guidance on future interest rate paths had a profound impact on the market.
This meeting not only disclosed the Fed's latest judgment on the current economic environment but also affected market expectations for future liquidity conditions, directly influencing global asset markets, including cryptocurrencies. Below, we will provide a detailed interpretation from two aspects: the core content of the Fed's decision and its direct impact on the market.
1.1. Core Content of the Fed's Decision: Maintaining Policy Stability but Releasing Easing Signals
The Fed decided to keep the benchmark interest rate unchanged at this meeting and emphasized in its post-meeting statement that "the policy stance remains restrictive to ensure inflation returns to the 2% target." This statement indicates that the Fed still believes the current level of inflation is insufficient to support an immediate rate cut, but compared to previous meetings, the wording of this decision has softened. For example, in earlier meeting statements, the Fed had repeatedly emphasized the "need for a longer period of restrictive policy," but in this meeting, this expression was weakened, shifting to emphasize that future decisions will be adjusted based on economic data. This change was interpreted by the market as the Fed preparing for a future policy shift.
Additionally, the Fed slightly lowered its GDP growth forecast in its latest economic projections while raising its inflation expectations for the coming years, indicating that policymakers are weighing the contradiction between economic slowdown and sticky inflation. For instance, the Fed now expects the U.S. GDP growth rate in 2025 to be revised down from a previous forecast of 2.1% to 1.8%, while the core PCE (the Fed's preferred inflation indicator) for 2025 was raised from 2.2% to 2.4%. This adjustment reflects the Fed's cautious attitude towards the future economic situation: although economic growth is slowing, inflation remains somewhat sticky, thus the Fed is unlikely to hastily cut rates in the short term.
Another key point of interest is the Fed's balance sheet policy. Since starting the balance sheet reduction in June 2022, the Fed has been reducing its holdings of U.S. Treasuries by up to $60 billion and MBS (mortgage-backed securities) by $35 billion each month. In this meeting, the Fed announced that the pace of balance sheet reduction would decrease from $60 billion to $50 billion. Although this adjustment is modest, it signals that the liquidity tightening cycle is about to slow down. The Fed's balance sheet reduction is a significant factor affecting market liquidity, as it directly determines the supply of dollars in the market. Over the past two years, due to the Fed's tightening policy, a large amount of liquidity has been withdrawn from the market, putting pressure on both the U.S. stock market and the crypto market. The slowdown in the pace of balance sheet reduction suggests that the Fed may be preparing for future liquidity easing.
The dot plot is one of the important tools for the market to interpret the Fed's policy direction. In this meeting, the dot plot indicated that the median interest rate expectation of FOMC members for 2025 is 3.75%, implying at least two rate cuts. Although this expectation is generally consistent with previous market expectations, there are still discrepancies in the details. Some officials expect rate cuts to begin as early as the fourth quarter of 2024, while others believe cuts will not occur until mid-2025. This divergence indicates that there are still differing views within the Fed regarding the stickiness of inflation, which will lead to significant uncertainty in future policy paths.
Overall, although the Fed's decision in this meeting maintained the interest rate unchanged, it released a series of easing signals: softened wording, slowed balance sheet reduction, lowered economic growth expectations, and the dot plot indicating a rate cut path. These factors combined have led the market to reassess the future monetary policy environment, directly affecting asset price trends.
1.2. Direct Impact of Fed Policy on the Market: Liquidity Turning Point Approaches, Risk Assets Welcome a Turning Point
The impact of the Fed's policy adjustments on the market can be analyzed from multiple dimensions, particularly the U.S. dollar index (DXY), U.S. Treasury yields, the stock market, and the cryptocurrency market. Following the announcement of this decision, the market's immediate reaction indicated that investors' expectations for improved liquidity are strengthening, suggesting that high-risk assets like Bitcoin may be entering a rebound cycle.
First, the U.S. dollar index (DXY) fell sharply. The dollar index is an important indicator of global capital flows. After the Fed hinted at a potential slowdown in tightening, the dollar index quickly retreated, recording its largest single-day drop since 2023. A weaker dollar typically means that global capital is more willing to flow into high-yield assets, providing support for U.S. stocks, gold, and risk assets like Bitcoin. Over the past two years, due to the Fed's continuous rate hikes, the dollar index remained strong, leading to capital outflows from emerging markets and putting pressure on risk assets. Now, with the change in the Fed's policy tone, the market is beginning to expect that the strong dollar cycle may soon come to an end, which will benefit Bitcoin and other crypto assets by attracting more capital inflows.
Second, U.S. Treasury yields declined, indicating a turning point in interest rate expectations. Changes in U.S. Treasury yields are often seen as the market's anticipation of the future interest rate environment. After the Fed meeting, the 10-year U.S. Treasury yield fell from 4.3% to 4.1%, showing that the market is beginning to price in the possibility of future rate cuts. For the stock and crypto markets, lower U.S. Treasury yields mean reduced funding costs, thereby enhancing the attractiveness of risk assets. Historical data shows that when U.S. Treasury yields decline, Bitcoin often performs strongly, as this indicates an improving liquidity environment.
In the stock market, particularly technology and growth stocks, there was a strong rebound. The Fed's policy adjustment had a particularly noticeable impact on tech stocks, as tech companies typically rely on lower financing costs, and the rising expectations of rate cuts have led investors to re-enter these stocks. The Nasdaq index surged over 2% after the meeting, and the stock prices of growth companies like Tesla and Apple also rebounded. This trend is a positive signal for the crypto market, as the correlation between tech stocks and Bitcoin has been increasing in recent years, with both showing greater interconnectedness in capital flows.
The crypto market also reacted swiftly. Bitcoin's price surged over 5% shortly after the Fed's decision was announced, breaking through the key resistance level of $85,000. Mainstream cryptocurrencies like Ethereum also rose in tandem, reflecting the market's strengthening expectations for liquidity easing. If the Fed continues to release easing signals in the coming months, Bitcoin may enter a new upward trend, potentially breaking previous highs.
In summary, although the Fed's policy decision did not immediately adjust interest rates, the signals released have far-reaching implications for the market. The weakening dollar, declining U.S. Treasury yields, rising tech stocks, and Bitcoin's rebound all indicate that the market is gradually adjusting its expectations for liquidity. For investors, this suggests that the liquidity turning point may be approaching, and high-risk assets like Bitcoin may be entering a new upward cycle.
II. Market Macro Background: Liquidity Turning Point Has Arrived, Funds May Flow Back to Risk Assets
Over the past two years, global financial markets have experienced an unprecedented liquidity tightening. The Fed began its rate hike cycle in March 2022 while simultaneously implementing large-scale balance sheet reduction (QT), causing a dramatic shift in the global funding environment. This policy led to a decline in dollar liquidity, rising capital costs, and significant corrections in risk asset prices. Bitcoin, as a high-risk, high-volatility asset class, faced severe market turbulence during this process. However, with the Fed slowing its balance sheet reduction pace in 2024, the flow of market funds is undergoing subtle changes, and the liquidity turning point may have quietly arrived.
2.1. Recent Liquidity Environment Analysis: Market Funding Turning Point Emerges, Large Amounts of Off-Market Funds Await Entry
In the context of collective tightening by global central banks in 2022-2023, market funds have become conservative, severely suppressing risk asset valuations. However, multiple data indicators since 2024 indicate that the liquidity environment is changing. The Coinbase research team recently analyzed that Bitcoin may bottom out and rebound in the coming weeks, based on the following main points:
First, the pace of global liquidity tightening is slowing. Over the past two years, due to the rate hikes by major central banks like the Fed and the European Central Bank, global financial markets have experienced severe capital outflows and deleveraging, putting pressure on both the stock and crypto markets. However, in the March 2024 meeting, the Fed clearly stated that the pace of balance sheet reduction would slow, and the dot plot indicated that there may be 2-3 rate cuts within the next 12 months. This means that the tightening force of restrictive monetary policy over the past two years is weakening, and market liquidity may improve.
Second, the correlation between the U.S. stock market and the crypto market has strengthened, with the crypto market becoming more sensitive to macro liquidity changes. The 90-day rolling correlation between Bitcoin and the U.S. stock market (especially the Nasdaq index) reached a high of 0.75 in 2024, indicating a significant increase in their interconnectedness. In other words, the performance of tech stocks increasingly influences Bitcoin, and tech stocks are highly sensitive to interest rates. As the market adjusts to the Fed's future policies, tech stocks have begun to rebound, and this trend is likely to drive the prices of Bitcoin and other crypto assets upward.
Additionally, rising risk aversion among investors has led institutions to reduce their allocation to crypto assets, but the market structure remains healthy. In the second half of 2023, due to rapidly rising U.S. Treasury yields, the market's expectations for prolonged high interest rates caused most institutional investors to reduce their allocations to crypto assets. Hedge funds and traditional institutions shifted their funds to low-risk assets like short-term U.S. Treasuries and money market funds, leading to decreased liquidity in the Bitcoin market and reduced trading volume. However, it is noteworthy that there has been no systemic risk in the market, and the structure of the crypto market remains relatively healthy, with steady inflows of funds into BTC spot ETFs, indicating that institutions are still looking for suitable entry opportunities.
The most critical point is that the total balance of the stablecoin market has grown to $229 billion, indicating that off-market funds are accumulating and waiting to enter. Historical data shows that the supply of stablecoins is closely related to the flow of funds into the crypto market. When the total market value of stablecoins increases, it often means that the crypto market is about to welcome new incremental funds. Currently, the total balance of USDT (Tether) and USDC has been continuously growing since the end of 2023, showing that a large amount of capital is on the sidelines, and once the market trend is confirmed, this capital may quickly flow back into Bitcoin and other crypto assets.
In summary, although the crypto market is still affected by macroeconomic uncertainties, the pressure of global liquidity tightening is diminishing, and there remains a large amount of capital waiting to enter the market. If the Fed continues to release dovish signals in the coming months and global liquidity improves, the crypto market is likely to welcome a new rebound cycle.
2.2. The Relationship Between Dollar Liquidity and the Crypto Market: Historical Data Reveals BTC Trend Patterns
From historical data, the degree of dollar liquidity tightening is highly correlated with the performance of the Bitcoin market. Specifically, in a low-interest, loose monetary environment, Bitcoin often experiences significant increases, while in a high-interest, tightening policy environment, Bitcoin faces immense pressure. We can break down this trend into the following three stages:
Phase One: 2017-2021 — Easing Cycle Drives BTC Bull Market
From 2017 to 2021, the Federal Reserve maintained low interest rates and a QE (quantitative easing) policy, resulting in extremely abundant global market liquidity. During this phase, institutional investors showed a significant increase in interest in risk assets, leading Bitcoin to experience two bull markets:
In 2017, the price of BTC rose from $1,000 to $20,000, an increase of over 20 times.
From 2020 to 2021, the Federal Reserve implemented a zero interest rate and unlimited QE due to the pandemic, causing the price of Bitcoin to surge from $4,000 to $69,000, setting a historical high.
Phase Two: 2022-2023 — Tightening Policies Lead to BTC Crash
In 2022, the Federal Reserve aggressively raised interest rates (a total of 11 hikes, increasing the rate from 0.25% to 5.5%) while simultaneously implementing large-scale balance sheet reduction, leading to global liquidity tightening. As a high-volatility asset, Bitcoin faced significant corrections during this period, with an annual decline of over 60%. Institutional investors withdrew, and market trading volume dropped sharply.
Phase Three: 2024-2025 — Slowing Balance Sheet Reduction, BTC Welcomes Recovery
As the Federal Reserve slows the pace of balance sheet reduction in 2024, signals of improving market liquidity are emerging. Historical experience shows that when liquidity pressure eases, BTC tends to enter a new upward cycle as market funds flow back in. If the Federal Reserve begins to cut rates or adopts a more accommodative policy before 2025, Bitcoin may experience a bull market driven by the recovery of liquidity.
Currently, the Federal Reserve is at a critical stage of policy transition. Although it has not yet entered a rate-cutting cycle, signals such as slowing balance sheet reduction, a declining dollar index, and increasing stablecoin balances indicate that a liquidity turning point has emerged. If the Federal Reserve continues to release easing signals in the coming months, the crypto market is likely to attract more capital inflows, and Bitcoin, as a liquidity barometer among risk assets, will benefit first, ushering in a new upward trend.
### III. Bitcoin Market Outlook: Possibility of a Bottom Rebound and Risk Factors
Recent price fluctuations in the Bitcoin market, institutional capital flows, and the macroeconomic environment all suggest that the market may be in a bottoming phase and is likely to rebound against the backdrop of warming liquidity. However, investors should remain vigilant about the uncertainties present in the market, including the direction of Federal Reserve policy, geopolitical risks, and potential internal risks within the crypto market.
3.1. Short-Term Price Trend Analysis of Bitcoin: Strengthening Bottom Signals, Technical Indicators Show Rebound Potential
From a technical analysis perspective, Bitcoin's recent market performance shows signs of strengthening bottom support, with multiple technical indicators suggesting that the market may be approaching a turning point.
First, the key support level of $76,000 - $80,000 forms the market bottom.
In recent weeks, Bitcoin's price has tested the $76,000 - $80,000 range multiple times but has not effectively broken below it, indicating strong buying support in this area. Historical data shows that this range is also the cost area for a large influx of BTC spot ETF funds, and the involvement of institutional capital has reinforced the support. Additionally, on-chain data analysis indicates that there is a significant accumulation of UTXOs (unspent transaction outputs) from long-term holders in this range, suggesting strong confidence among holders and no large-scale panic selling.
Second, the RSI (Relative Strength Index) has rebounded, indicating market momentum recovery.
The RSI is typically used to measure whether the market is overbought or oversold. When the RSI is below 30, the market enters an oversold state, suggesting a potential bottom rebound. Recently, Bitcoin's RSI has rebounded from around 30 to the 45-50 range, indicating that market momentum is recovering and bullish strength is gradually increasing. Furthermore, an RSI rebound is usually accompanied by a gradual stabilization in price, showing that market buying pressure is strengthening.
Third, trading volume is gradually increasing, indicating a recovery in market liquidity. In the bottoming phase, changes in trading volume are crucial. Recently, Bitcoin's trading volume in the key support area has increased, indicating that market buying is entering rather than pure selling. During the low-level fluctuations of the past few weeks, Bitcoin's trading volume has gradually risen, suggesting signs of capital inflow. Once market sentiment turns optimistic, incremental funds may accelerate Bitcoin's exit from the consolidation range.
In summary, if the Federal Reserve maintains its current monetary policy and market liquidity continues to improve, Bitcoin may maintain a consolidation bottom structure in the short term and welcome a rebound in the second quarter.
3.2. Institutional Investors' Market Movements: Capital Inflows Strengthen Market Support
The movements of institutional investors play a crucial role in the medium- to long-term trends of the Bitcoin market. In recent years, with the launch of Bitcoin spot ETFs, more traditional financial institutions have participated in the Bitcoin market, and their capital flows have become an important barometer of market sentiment.
First, Grayscale's BTC holdings remain stable, with no large-scale selling. Grayscale, as one of the largest Bitcoin trust funds globally, has its BTC holdings viewed as an important market indicator. In the first quarter of 2024, Grayscale's BTC holdings remained stable, with no significant capital outflows, indicating that institutional investors have not panicked and sold off due to short-term market fluctuations. In contrast, in previous years, during extreme market volatility, Grayscale's capital outflows typically exacerbated Bitcoin price declines, while in this round of adjustments, the stability of Grayscale's holdings has increased, suggesting that institutional investors still have confidence in BTC's long-term value.
Second, the capital flow of Bitcoin spot ETFs shows that institutions are increasing their BTC holdings. Bitcoin spot ETFs are one of the most important channels for capital inflow into the market in 2024. Institutional investors are still buying on dips. This contrasts sharply with the large-scale capital outflows during the Federal Reserve's tightening cycle in 2022-2023. The continuous inflow of ETF funds not only provides market buying support but also enhances confidence in BTC's long-term trend.
Third, MicroStrategy continues to increase its BTC holdings, showing that institutions maintain confidence in long-term value. MicroStrategy, as one of the largest corporate BTC holders globally, has recently increased its BTC holdings again, with total holdings exceeding 214,000 BTC. This indicates that despite significant short-term market fluctuations, some institutional investors are still willing to hold BTC long-term and view it as an important asset allocation tool. MicroStrategy's accumulation not only boosts market confidence but also sends a signal to other institutions about BTC's long-term investment value.
Overall, the continuous inflow of institutional capital provides strong medium- to long-term support for BTC prices and enhances the market's rebound momentum.
3.3. Possible Market Risks: Uncertainties Remain, Need to Be Cautious of Sudden Shocks
Although the market is showing signs of a bottom rebound, several risk factors could affect Bitcoin's short-term performance.
First, the uncertainty of Federal Reserve policy. Although the market generally expects the Federal Reserve to cut rates in the second half of 2024, if inflation data rebounds, the Fed may delay rate cuts or even tighten liquidity further. For example, if future CPI (Consumer Price Index) data rises unexpectedly, the Fed may revert to a hawkish stance, leading to deteriorating market sentiment and pressure on risk assets. In this scenario, Bitcoin may face further adjustment pressure.
Second, global geopolitical risks may affect investors' risk appetite. In recent years, geopolitical events have increasingly impacted financial markets. For instance, the Russia-Ukraine conflict, tensions in the Middle East, and instability in the Asia-Pacific region can all influence global investors' risk preferences. If market risk aversion rises, capital may flow into traditional safe-haven assets like U.S. Treasuries and gold, while high-risk assets like Bitcoin may face short-term selling pressure.
Third, liquidity risks within the crypto market. In addition to macroeconomic factors, there may also be potential risks within the crypto market. For example, if certain exchanges experience liquidity issues or liquidation risks, it could trigger short-term violent market fluctuations. Additionally, if large institutional investors sell BTC due to liquidity needs, it could also impact the market. Therefore, investors should closely monitor on-chain data, capital flows in exchanges, and leverage conditions in the derivatives market to assess whether there are potential risks in the market.
Currently, the Bitcoin market is in a phase of enhanced bottom support, institutional capital inflows, and improving liquidity conditions, with the market awaiting new catalysts to push prices beyond the consolidation range. However, investors should remain cautious of uncertainties in Federal Reserve policy, geopolitical risks, and liquidity risks within the crypto market, as these factors could influence short-term market trends.
From an overall trend perspective, if market liquidity continues to improve and institutional capital continues to flow in, Bitcoin is expected to welcome a rebound in the second quarter. However, until key resistance levels are effectively broken, the market may continue to exhibit a consolidation trend, and investors should closely monitor macroeconomic data, ETF capital flows, and market trading volume in the coming months to determine whether Bitcoin has entered a new upward cycle.
### IV. Investment Strategies and Conclusions
In the current market environment, investors should adjust their investment strategies based on different investment styles, risk tolerance, and understanding of the market. The Federal Reserve's continued policy stability, gradual improvement in the liquidity environment, and signals of a rebound in the Bitcoin market all present different opportunities and challenges for investors. To achieve better investment returns in this volatile market, investors must flexibly adjust their strategies and closely monitor changes in macroeconomic conditions and market trends.
4.1. How Should Investors Respond to the Current Market?
Short-term Traders' Strategy: For short-term traders, the market's volatility is significant, making technical analysis particularly crucial. In the short-term fluctuations of Bitcoin's price, the key support level of $80,000 is a very important reference point. If Bitcoin's price falls below this area, short-term traders should consider setting short-term stop losses to avoid the risk of further losses from market declines. Meanwhile, once the market shows signs of stabilization, short-term traders can wait for Bitcoin's price to break through the $88,000 area and gain confirmation, at which point they can increase their positions to capitalize on subsequent price increases.
However, short-term trading carries higher risks, especially in a crypto market where liquidity is still not fully stable, so traders should strictly set stop-loss points to avoid excessive exposure. Technical signals from the market, especially when prices break through key resistance areas, can help short-term investors grasp short-term price fluctuation trends. Additionally, short-term traders should closely monitor the release of macroeconomic events, such as U.S. non-farm payroll data, CPI, and Federal Reserve policy meetings, as these factors can significantly impact market volatility.
Medium- to Long-term Investors' Strategy: For medium- to long-term investors, there remains considerable upside potential in the current market, especially as the liquidity environment gradually warms. Compared to short-term traders, medium- to long-term investors can afford to be more patient in waiting for the market rebound opportunity. Currently, Bitcoin's price may be in a relatively bottom area, and the liquidity turning point has arrived. Medium- to long-term investors can gradually accumulate assets in batches during price pullbacks, particularly near key support areas (such as the $88,000-$83,000 range), which will lay a solid foundation for future rebound trends.
As the Federal Reserve slows its balance sheet reduction and market liquidity gradually improves, medium- to long-term investors are expected to benefit from the upcoming rebound cycle. When building positions, investors should focus on the long-term trends of BTC and changes in market sentiment, while trying to avoid the impact of short-term market sentiment fluctuations on investment decisions. As confidence in the Bitcoin market gradually recovers, medium- to long-term investors will achieve relatively stable returns.
Institutional Investors' Strategy: Institutional investors typically have stronger financial capabilities and risk management skills, so their investment strategies often emphasize the accumulation of long-term value and adopt relatively conservative operational methods. In the current market environment, institutional investors should closely monitor changes in Federal Reserve policy, especially any potential signals of monetary easing in the future. If the Federal Reserve decides to increase monetary easing or cut interest rates, this will bring more capital inflows to risk assets, including Bitcoin.
At the same time, institutional investors may consider long-term holdings of Bitcoin and Ethereum to hedge against the risk of dollar depreciation. As the two most liquid crypto assets, Bitcoin and Ethereum have gradually become key components of institutional asset allocation, and this trend may accelerate as the crypto market matures. By holding these crypto assets, institutional investors can not only gain substantial returns during price rebounds but also avoid potential risks associated with traditional financial assets, such as inflation and global market uncertainties.
4.2. Future Market Outlook
From the overall market performance perspective, as the Federal Reserve's policy stabilizes and the liquidity environment warms, the likelihood of a short-term rebound and medium- to long-term rise in Bitcoin is gradually increasing. Although the market still faces shocks from risk factors, particularly macroeconomic uncertainties, geopolitical risks, and potential liquidity issues within the crypto market, the expectations of easing Federal Reserve policies and the continuous inflow of institutional capital still bring new opportunities to the Bitcoin market.
First, the outlook for improving market liquidity is clear. As the Federal Reserve slows its balance sheet reduction, market liquidity is expected to gradually warm up, especially in the short term, where a loosening trend in the dollar may provide more capital inflows into risk assets. Historical trends of Bitcoin indicate that in an environment of dollar liquidity easing, BTC often performs strongly. Therefore, in a favorable macroeconomic environment, Bitcoin is expected to rebound in the coming weeks, providing profit opportunities for investors.
Second, Bitcoin is likely to enter a new upward cycle. Supported by the liquidity environment, Bitcoin's price may break through the target area of $85,000 - $88,000, ushering in a new upward cycle. However, this process may also face technical consolidation, and after breaking through key resistance levels, the market will still need to deal with fluctuations in capital allocation and market sentiment.
Third, market risks still exist. Although the market is expected to warm up, investors should remain attentive to the fine-tuning of Federal Reserve policies and changes in the global economy. In particular, a rebound in inflation or an escalation of international conflicts could lead the Federal Reserve to tighten monetary policy again, which would put pressure on risk assets like Bitcoin. Therefore, investors must remain vigilant, closely monitor market dynamics, and adjust their investment strategies in a timely manner.
Overall, in the context of stable Federal Reserve policies and gradually improving liquidity conditions, the Bitcoin market presents a relatively optimistic outlook, but market volatility remains high. Investors should make reasonable asset allocations based on their risk tolerance and market trends.
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