This article is reprinted with permission from Phyrex_Ni, and the copyright belongs to the original author.
In the past week, the market has really changed dramatically. The biggest gamble at that time was the Jackson Hole annual meeting, and Powell's speech at the meeting left investors in a state of indecision. Originally, investors wanted Powell to provide a clear direction, but instead, it made the market even more confused.
Powell's speech emphasized that the U.S. economy might encounter a mild recession or a brief downturn. He also mentioned the weakening labor data and rising unemployment rate, which almost always occurs at the beginning of an economic recession. He expressed concerns about the contraction of U.S. GDP. Although Powell did not explicitly state the monetary policy path for September, investors generally believe that the Federal Reserve will choose to cut interest rates in September due to concerns about an economic recession. As a result, expectations for a rate cut in September rose to 95% after Powell's speech.
However, a day later, by the weekend, this expectation dropped back to around 75%, and as of now, it is less than 88%, which is similar to the situation before last week's Jackson Hole meeting. This means that after the meeting, the market became more worried, but the optimism about a rate cut has not improved, and the concerns about an economic recession have returned to the same level as last week.
Bitcoin can be seen as a precursor to the U.S. stock market, so the decline in BTC over the weekend and into the workweek was more pronounced, while the U.S. stock market held up relatively well, especially tech stocks, which did not react significantly. Therefore, from the performance of the U.S. stock market, there is no indication that it has entered a systemic risk phase. Of course, last week also showed a similar trend; the U.S. stock market did not react much on Monday, but began to decline on Tuesday. Currently, compared to last week, the U.S. stock market's reaction is still relatively good, with a slight increase on Tuesday instead of a decline.
Overall, it seems that after a week of investor gambling, the situation has not become more severe, especially when using the U.S. stock market as a reference. Investor sentiment has not worsened compared to last week. The most critical data this week should be Friday's PCE. We discussed this data last week; both Nick and Powell have preliminary expectations, including the Cleveland Fed, which anticipates that the data will not differ much from last month's figures. Therefore, the core PCE data could alleviate concerns about rising inflation. Of course, with tariffs in place, rising inflation is also normal, and even now, the tariffs we see are not all the data after the tariffs have been fully implemented; they are merely reciprocal tariffs.
The actual tariff data, except for China, may not be fully visible until October. So if Powell does not feel any pressure, it would be very normal for him to choose not to cut rates in September. The key point here is the non-farm payroll data for August, which will be released in September. My personal guess is that if the non-farm data continues to be strong, with an increase in labor force participation and a decrease in the unemployment rate, then Powell may indeed not support a rate cut in September. Of course, this refers to Powell, not the entire Federal Reserve.
For the overall Federal Reserve, Trump's intimidation must be taken into account. As mentioned last week, Trump's goal is to boost the stock market, reduce fiscal spending, and have more surplus funds to develop the economy, which would help raise his approval ratings. Even a correction in the labor statistics data led him to replace the director. Therefore, even bad data may not necessarily hinder Trump's demand for a rate cut. A rate cut in September remains highly probable, but it is unlikely to exceed 25 basis points, and a second cut may occur in December. Of course, the dot plot in September will also be crucial.
Apart from monetary policy, Trump's sense of powerlessness regarding the Russia-Ukraine conflict is becoming increasingly evident. Although Ukraine is willing to follow U.S. arrangements, its bottom line is that it cannot cede territory, and Russia does not seem to have any serious intentions to sit down for negotiations. This is why Trump signaled in his speech on Monday that he would increase sanctions against Russia while cutting off financial aid to Ukraine, using a carrot-and-stick approach to force Ukraine to accept a reconciliation framework. However, this strategy is more of a political coercion, essentially reflecting the lack of hard leverage for the U.S. under fiscal deficit pressure, and it represents Trump's increasing inability to control the Russia-Ukraine conflict.
Currently, the two-week window has passed halfway. The U.S. is not providing funds, but Trump still needs to fulfill his promise to protect Ukraine's security. Therefore, drones, intelligence, and logistics have become the main forms of support, while the real burden of war still depends on whether Europe can take on more roles. The problem is that Europe is also facing economic and energy pressures, making it difficult to match the scale and sustainability of past U.S. aid. As a result, both Russia and Ukraine are enduring; Russia relies on delay and consumption to wait for Western division, while Ukraine maintains its front line with minimal support. The market should be concerned that under such a long-term stalemate, both fiscal costs and geopolitical risks will continue to accumulate.
More importantly, Ukrainian drone strikes are continuously weakening Russia's refining and export capabilities. Rising energy prices will bring new pressures on global inflation and monetary policy. There are also cracks in Europe's internal attitude toward aiding Ukraine, with Eastern European countries being more hardline, while Germany and France are more cautious. Meanwhile, Russia is using time to gain space, waiting for Western aid fatigue. What may truly determine the future direction is not Trump's two-week window but rather energy prices, the resilience of European finances, and whether Russia can endure long-term attrition.
From early 2024 to now, there have been three phases of rising. The first phase was driven by the approval of the $BTC spot ETF. After its approval in January 2024, a large amount of off-market funds began to buy Bitcoin in the primary and secondary markets, driving up BTC. However, since only BTC has additional funding sources, it experienced the most significant surge. The expectation was that BTC's rise would lead to sector rotation, but in reality, after BTC's upward momentum weakened, the overall market began to correct, with BTC even briefly falling below $50,000.
The second phase began due to expectations surrounding Trump's presidency and his friendly stance toward cryptocurrencies and BTC as a strategic reserve, along with changes in the SEC chair, leading to a wave of "Trump market" gains. This rise was mainly driven by BTC, as the narrative primarily revolved around BTC. Other cryptocurrencies, including $ETH and $BNB, did not see significant gains, while $SOL experienced some growth due to the rise of memes. However, as Trump began to push tariffs, the market entered another correction.
The third phase began when U.S. tariffs were not very aggressive. At this point, BTC remained the main player, but with the U.S. opening up its cryptocurrency policies, the SEC's unbinding of staking and securities, and the clarification of the ETF staking path, a batch of cryptocurrency concept stocks emerged, using the storage of certain cryptocurrencies as strategic reserves to boost stock prices. The first to benefit were ETH, BNB, and SOL. Although others also had voices for strategic reserves, they had not yet formed a scale. Then, listings, burnings, and public chain concepts like OKB also emerged as unexpected players.
Currently, although the overall cryptocurrency market has seen a correction in the past two weeks, BTC, ETH, BNB, and SOL, even OKB, still show relatively high stability. Moreover, among these four cryptocurrencies, companies with strategic reserves do not have any selling expectations for the time being, which reduces liquidity in the market and alleviates selling pressure. Therefore, from the perspective of the three phases, there has been no breakdown; for example, there have been no significant signs of large-scale selling of ETFs, and strategic reserves have not appeared. The current selling is mostly from spot investors.
As for the reasons for the decline, we have discussed that it is due to pessimistic expectations regarding a U.S. rate cut in September and an economic recession. Therefore, this selling may not be systemic. Additionally, from the perspective of the U.S. stock market, there has not been a large-scale decline. Even now, the U.S. stock market is only maintaining small-scale fluctuations and has not experienced the significant drop seen last week. Thus, for U.S. stock investors, there are no more pessimistic signs; rather, the U.S. stock market's performance remains relatively healthy. Even the VIX is around 15, which is still double the panic index of 30.
We have repeatedly stated the high correlation between the U.S. stock market and Bitcoin. Therefore, as long as the U.S. stock market does not show signs of panic, BTC will remain relatively stable. As for the overall cryptocurrency market, the first three phases of the bull market have already demonstrated the reasons for the rise of BTC, ETH, BNB, SOL, and OKB. In addition to these, XRP has ended its lawsuit with the SEC, and TRON has performed well due to Sun Yuchen's reverse merger listing. These rises are primarily triggered by major events, while most altcoins do not possess such capabilities.
Thus, the cryptocurrency market has not entered a comprehensive bull market since early 2024. If one must say, it should be classified as a non-typical bull market primarily belonging to compliant cryptocurrencies. Within this scope, cryptocurrencies like BTC and ETH still have good external funding purchases. Even on Monday, despite a significant drop, buyers of the spot ETF remained very enthusiastic. BNB and SOL are expected to have strategic reserves, while OKB has expectations for listings and public chains, and there are also leading exchanges behind them. All of these still have the potential to maintain upward momentum. As for other cryptocurrencies, or rather most altcoins, they have likely never entered a systemic bull market.
At 8:02 AM Beijing time on August 26, Trump signed the document to dismiss Federal Reserve Governor Cook. Some friends believe that the market's decline was triggered by this event. From a timing perspective, it is true that during this period, $BTC experienced a maximum fluctuation of $2,000. However, upon closer observation, it can be seen that the real driving force behind the decline did not come from this dismissal order but rather from the downward trend of the U.S. stock market that began at 3:30 AM. At that time, the U.S. stock market's decline accelerated significantly, dragging risk assets down simultaneously, and BTC merely followed the sentiment to amplify the volatility. In other words, the dismissal event played more of a role in emotional disturbance rather than being a direct negative factor.
However, the concerns of friends are not without reason. Trump's direct action against the Federal Reserve Board immediately raised questions about the boundaries of presidential power. If the president can dismiss governors at will, it means that any official who does not support Trump's policies could potentially be purged, undermining the independence of the Federal Reserve. What the market fears is this kind of "institutional destruction." However, there is an important legal limitation here, so there is no need for excessive panic.
The Federal Reserve Act (12 U.S.C. § 242) does indeed grant the president the power to dismiss governors "for cause." This means that, theoretically, the president has the authority to initiate a dismissal, but it must be based on serious misconduct, illegal actions, moral turpitude, or other significant reasons, rather than mere policy differences. However, under the framework of the U.S. Constitution, the independence of the Federal Reserve is regarded as the cornerstone of the financial system. Whether the president can directly exercise this power without judicial confirmation has never been established in historical precedent and remains a significant area of controversy. In other words, the president can sign a dismissal order, but the governor can challenge it through litigation. Whether the president's order ultimately takes effect will still depend on the court's ruling.
This is also why, just three hours after Trump signed the dismissal document, Cook issued a statement claiming that Trump did not have the power to dismiss him and that he would not resign. Legally, Cook's stance is justified. The reason Trump provided in the dismissal letter was "mortgage document fraud," which indeed meets the textual requirement of "for cause" in the Federal Reserve Act. However, the issue is that such accusations must undergo judicial review and may even require a court ruling to be deemed valid grounds for dismissal. Until then, the act of dismissal remains more of a political maneuver rather than an immediately effective legal fact.
So, the current question is not whether Trump "can dismiss" but whether the dismissal is truly effective. The answer is that the president does hold this power, but it must be backed by sufficient judicial support. If the court determines that Cook indeed engaged in document fraud, Trump could use presidential authority to remove him from office; however, until the court confirms this, Trump's order is more of a pressure tactic than a final decision. As president, Trump certainly understands this. So why would he take the risk of signing such a dismissal order?
The answer is simple: Trump's support within the Federal Reserve is still insufficient. He is eager to push for consecutive interest rate cuts, but there are still divisions within the board. Through this "administrative intimidation," Trump is sending a signal that any board member obstructing rate cuts may face investigation and dismissal. If the board members themselves have "dirty hands," then Trump has leverage to carry out a purge. In other words, this is a blatant political intimidation tactic.
Such interference in the independence of the Federal Reserve would have been seen in the past as a significant disruption to the system, resulting in substantial negative points. However, in the current environment, such actions may provoke entirely different interpretations. On one hand, it indeed undermines the authority of the institution, leading outsiders to question whether the Federal Reserve still possesses independence; on the other hand, against the backdrop of high fiscal deficits and economic recession risks, the market may also view this as a signal from Trump to accelerate the push for easing policies. From a certain perspective, this may not be purely negative; rather, it could serve to boost market sentiment.
Returning to on-chain data
First, let's look at the exchange inventory data. To be honest, this data is not good and reflects the recent changes in investor sentiment over the past week. Although BTC's price also fell last week, it was evident that the BTC inventory on exchanges was on a downward trend. As the price fell, more BTC was transferred out of exchanges. However, this week, it is clear that more BTC has been transferred into exchanges, with approximately 12,000 BTC entering exchanges over the past week.
We have previously explained multiple times that the stability and rise in BTC prices are not due to a significant increase in purchasing power but rather because of low selling volume. Most investors are withdrawing BTC from exchanges, with fewer transfers in. However, the recent increase in transfers into exchanges has led to increased selling pressure on BTC.
Even from BTC's trading volume, it can be seen that since April, the trading volume has been very sluggish over the past four months. Especially in the past week, even with the decline in BTC prices, there has been no significant increase in trading volume, indicating that there has been neither substantial buying nor selling. Compared to the larger price fluctuations in the previous four months that triggered changes in trading volume, it can be inferred that the number of investors participating in BTC trading has been decreasing in recent months, meaning both buyers and sellers are diminishing. Therefore, when negative information arises, leading to a slight increase in selling and a slight decrease in buying, BTC's price will be challenged.
This is not only the case in the spot market but also in the ETF market. It is evident that the main ETF, $IBIT, has a trading volume that, while better than the spot market, is still very limited, and overall trading volume is gradually declining. The primary market for ETFs is even worse; over the past week, there has been a net outflow for five consecutive trading days, indicating traditional investors' fatigue regarding current BTC investment sentiment. Of course, due to policy support, the sentiment for selling BTC is indeed not high.
The main reason for this phenomenon is likely the lack of an independent narrative for BTC. Currently, BTC resembles a tech stock in the U.S. stock market; when the tech sector is rising overall, BTC's performance will not be too poor. However, since this is not an inherent narrative for BTC, breaking through the limitations of tech stocks or macro factors will be challenging unless information similar to U.S. strategic reserves emerges to stimulate investors' buying sentiment and increase purchasing power. Otherwise, BTC is likely to re-enter a "garbage time."
"Garbage time" has occurred in both 2023 and 2024, each lasting about eight months of oscillation, during which there is approximately a 20% fluctuation, but trading volume is very low. It is only when new positive or negative stimuli arise that prices can break out of the oscillation range.
In contrast to BTC, the data for $ETH looks much better. In the primary market, the purchasing power for ETH spot ETFs over the past two to three weeks has been at least double that of BTC spot ETFs, indicating that off-market funds are gradually flowing into ETH. Moreover, BlackRock's $ETHA has not only maintained its volume during ETH price declines but has actually seen higher trading volume, indicating a strong willingness among the market to trade. Even in the spot market for ETH, trading volume is not far behind, reflecting the structural differences between ETH and BTC, with ETH being accumulated by investors using funds.
Next, let's look at the performance of BTC held for over a year. When we looked last week, it was in a distribution phase, and now long-term holders are still in a distribution phase. If this historically reliable data remains accurate, BTC's price should still be in a relatively stable trend, with no significant signs of a sharp decline for the time being. Of course, as I always say, because macro and political factors have a greater impact on prices now, the data from long-term holders can only serve as a reference; macro and policy factors should still take precedence.
Additionally, last week we discussed that both BTC and ETH's open interest were at high levels. A week later, although BTC's price has declined this week, the open interest has not decreased but rather increased. From the data, the blue line represents last week's data, and this week, compared to last week, open interest continues to rise, indicating that investors' speculative sentiment is growing. The increase in contracts suggests that investors are increasing their leverage in speculation, which may lead to heightened volatility. As we mentioned last week, the more leveraged funds there are, the more likely prices are to experience sharp rises and falls.
For ETH, this recent decline has indeed cleared some leverage. Although not significantly, open interest has shown a decreasing trend. Of course, the current open interest for ETH is not far from its high point in nearly a year, and relative to BTC, the on-chain leverage for ETH may be greater. Once liquidation occurs, the chain reaction could be more significant than for BTC. Therefore, during recent declines, ETH's drop has been more pronounced, and due to stronger purchasing power, price rebounds may occur more quickly.
Next, looking at the holding data, the data from the past week is quite interesting. It is evident that high-net-worth investors holding more than 10 BTC increased last week, but the increase was not significant. In contrast, small-scale investors holding less than 10 BTC showed very clear signs of accumulation, especially when BTC's price fell, suggesting that more small-scale investors are attempting to buy the dip, while the changes among high-net-worth investors are not substantial.
Finally, we return to the URPD data. Overall, the stability around $110,000 is as we expected last week—very resilient. Even if it is briefly breached, it quickly returns above $110,000, indicating that many investors still see this as a buying opportunity. From the support structure, compared to above $110,000, the range from $102,000 to $108,000 has become a very solid support level. Unless there is new negative information—not just concerns about a September rate cut or a U.S. economic recession, but more severe or substantiated information—I believe that at least the sixth support level will not be easily breached, and $110,000 remains a good support level.
In summary, the current landscape aligns with our expectations from the past two weeks. After resolving tariff issues, Trump's most important and challenging hurdle is the Federal Reserve. Trump once believed Powell would be compliant, but in reality, Powell's stubbornness exceeded Trump's expectations. Moreover, not only Powell but at least seven or eight members of the Federal Reserve Board are moderates, making it difficult for these moderates to lean toward Trump. This is why Trump had to resort to dismissing Cook to remind other Federal Reserve members.
Although investor sentiment has not been very positive in recent days, starting Tuesday, it has become evident that despite unfavorable expectations regarding a September rate cut and the U.S. economy, investor sentiment this week is somewhat lighter compared to last week. Beginning Tuesday, the U.S. stock market not only did not continue to decline but also experienced a slight rebound, indicating that investors have not entered a state of extreme pessimism or concluded that the bull market has ended. On Friday, the core PCE data will be released, which should not be too poor and should at least meet market expectations, helping to boost investor sentiment.
Related: Will Bitcoin (BTC) trend reverse to reach $118,000 or drop again to $105,000, which will come first?
Original article: “Strategic Games Under Market Uncertainty: Analyzing Fed Policy, Geopolitical Risks, and Bitcoin (BTC)”
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