The U.S. midterm elections have just concluded, and although global stock markets are still digesting the selling pressure, the tone in the U.S. Treasury market has suddenly reversed: this week, funds have moved from the stock market to U.S. Treasury bonds for safety, pushing up bond prices. The yield on the 10-year U.S. Treasury bond dropped to its lowest level since early September, closing Friday at 4.82%. Bond traders continue to bet that Treasury bonds can rise further and that the rate-hiking cycle is nearing its end. During the same time frame, prior to the release of the October non-farm employment report, Federal Reserve official Williams publicly spoke, reminding that the U.S. is facing simultaneous unusual shocks on both demand and supply fronts, stating that inflation is "absolutely too high and lasting too long," while the labor market remains "exceptionally stable and robust," and the economy shows "remarkable resilience." He specifically pointed out that AI development and energy prices are pushing inflation higher in the short term, but emphasized that inflation expectations are well-anchored, with no signs indicating that long-term inflation is seriously out of control. On the surface, this aligns with the typical official stance that "high rates will need to endure longer," pointing to stubborn inflation and a strong economy. However, the market is using declining yields and rising safe-haven demand to price in a story that "the probability of continued rate hikes is declining": when yields fall, it is not due to optimistic growth but rather a retreat in risk appetite and a passive lengthening of dollar asset duration. Under this misaligned macro narrative, how the risk premium, fund flow, and allocation weight of typically sensitive assets such as BTC and ETH to U.S. Treasury yields and global risk appetite will be repriced becomes a core variable in the coming weeks.

Hawkish Warnings and Resilient Economy: What is Williams Saying?

While the market is telling the story of "the peak of rate hikes" through falling U.S. Treasury yields, Williams offers a starkly different narrative. He pointed out that the U.S. is facing "unusual shocks to both demand and supply," and provides a direct judgment: that the current price levels are "absolutely too high" and have persisted for too long. The implication behind this statement is that inflation has not safely returned to a range where it would be reassuring to cut rates. Central banks are not seeing a simple demand overheating or supply bottleneck but a layered structural shock, where any easing of financial conditions would be regarded as a license for inflation to rise again.

Moreover, in emphasizing the seriousness of the inflation problem, he repeatedly affirmed the economy's "resilience": the labor market is "exceptionally stable and robust," and the U.S. economy shows "remarkable resilience." This serves as a reminder to the market that high rates have not significantly crushed employment and growth, allowing high rates to persist for longer without the need to rush to "oxygenate" the economy. With inflation expectations still "well-anchored," he categorized AI development and energy prices as new factors pushing inflation higher in the short term, acknowledging that the surge in technology investment and energy transmission is adding new noise to prices. This combination signals that fears of long-term loss of control are temporarily muted, but short-term price paths are more uncertain, suggesting that high rates do not need to exit quickly, and when rates truly turn, it will depend more on whether these new variables continue to push inflation high.

U.S. Stocks Get Crushed, U.S. Treasuries Are Snapped Up: The Safe-Haven Repricing Channel

Just as Williams emphasized that inflation is "absolutely too high" and hinted that high rates would be difficult to withdraw quickly, the global stock market responded to the U.S. midterm elections by casting its own vote—selling. The dust settling from the elections did not bring about increased risk appetite; rather, under the shadow of "longer high-rate periods," global stock markets experienced a wave of concentrated selling pressure, putting overall risk assets under stress. This week, safe-haven sentiment rapidly intensified, with funds starting to materially flow out of the stock market and into U.S. Treasury markets, where Treasury bonds were heavily bought, prices rose, and yields fell, showcasing the typical scenario of "U.S. stocks getting crushed while U.S. Treasuries are scooped up."

This round of buying most directly reflected on the 10-year U.S. Treasury bonds: yields fell to their lowest level since early September on Thursday and closed at 4.82% on Friday. For long-term rates, the slide from high positions to this temporary low is not just a technical position but sends a price signal that the market is betting the rate-hiking cycle is nearing its end, and the future path of rates is more likely to be "high rates hold without rising further," or even beginning discussions about when to lower. Bond traders are betting that U.S. Treasuries will rise further and yields will continue to decline; market expectations of the Fed continuing to raise rates have clearly cooled, but this is entirely the market's own pricing and not the Fed's official position: on one side, there is Williams stating "inflation is too high, the economy shows exceptional resilience," indicating hawkish patience; on the other, the bond market, with a 10-year yield of 4.82%, is already drafting a dovish script. This misalignment between official narratives and market pricing may serve as the starting point for the potential different directional trends of crypto assets versus traditional assets, as well as the key background for determining whether the risk premium of BTC and ETH is being reevaluated.

Declining Yields and Risk Appetite: Which Side Do BTC and ETH Stand On?

If one only looks at the 10-year U.S. Treasury yield dipping toward its lowest level since early September, closing at 4.82% on Friday, this should fit a typical "long-term risk-free rate declining" scenario—lower discount rates imply a favorable valuation model for all assets treated as "long duration": future cash flows for high-growth tech stocks are discounted more favorably; BTC and ETH, considered high beta, long narrative assets, should theoretically see their risk premiums elevated as well. However, the actual pricing mix shows that the global stock market faced selling after the U.S. midterm elections, and funds have flowed into U.S. Treasuries for safety, indicating that the market interprets the yield decline as more of a "buying bonds to avoid risk" rather than "leveraging to pursue risk."

Amid this misalignment of "declining yields + stock market selling," BTC and ETH find themselves caught between two forces: on one side, falling discount rates are beneficial long-term for narrative assets; on the other, short-term risk aversion is rising, institutional risk budgets are contracting, and trading desks are more inclined to lock limited dollar liquidity into safe assets such as Treasury bonds instead of continuing to provide leverage and new spot buying for high volatility assets. Historical experience shows BTC and ETH are highly sensitive to U.S. Treasury yields, dollar liquidity, and global risk appetite; when risk-free rates decline but are accompanied by stock market selling, funds often first choose to enhance portfolio defensiveness before considering reallocating the safe spreads earned on Treasury bonds into high beta assets. Therefore, whether this round of yield decline is read by the market as a "valuation repair opportunity" or a "defensive signal" will directly determine BTC and ETH's positioning within risk asset spectra.

AI is Identified as Driving Up Inflation: Misalignment of New Tech Narratives and Crypto Valuations

In terms of these remarks, what truly breaks the market script is not the old adage of "inflation is too high," but rather that Williams first identified AI as a short-term inflation driver and included it alongside energy prices in the basket of rising costs. In traditional macro narratives, technological progress is viewed as a medium to long-term deflationary force: efficiency increases and marginal cost decreases provide a dual imaginative space of "lower discount rates + higher growth" for long-duration assets. However, when a key central bank official publicly acknowledges AI as a force currently raising costs and pressure on prices, technology changes from a "deflationary safeguard" to an "inflation suspect," directly rewriting the risk pricing framework for tech assets. Especially under the premise that he also emphasizes the U.S. economy's "remarkable resilience" and the labor market's "exceptionally stable and robust" condition, the combination of "AI pushing up inflation + strong economic resilience" tends to signal to the market that it is not "soon safe to lower rates," but rather "rates might stay elevated for a longer period." Even if bond traders currently bet the probability of further Fed rate increases is cooling, the "high-level plateau phase" of risk-free rates will also be extended, thereby raising the risk premiums that all high beta assets must pay.

This contrasts sharply with the narrative the crypto world is currently hyping—"AI + on-chain": on-chain AI-related tokens are attempting to package themselves as direct carriers of the next generation of technological dividends, and their valuations highly depend on global tech sentiment and the optimistic story of "AI = productivity revolution." However, at the macro level, if AI is regarded as a new source of inflation rather than a net deflationary force, its implications on the rate side correspond to more stubborn high rates and slower easing rhythms, constraining the pricing of all assets seen as "long-duration tech assets," including BTC and ETH, which are very sensitive to U.S. Treasury yields and global liquidity. The outcome is a scenario where one side—on-chain AI themes—enjoys a premium from the tech narrative, while on the other side, macro concerns over AI-related inflation raise base rates and compress overall valuation space, pulling in opposite directions on the same asset, and it is more likely that funds will treat BTC and ETH as purely bets on the rate cycle and liquidity rather than unconditionally riding the "AI tech bull market," this misalignment will profoundly affect the sustainability and ceiling of AI-related themes in the crypto market going forward.

Policy Suspense Before Non-farm Data: What Crypto Funds Should Focus On

Before the non-farm data is released, Williams has already elevated the tone: inflation is "absolutely too high," and the economy and labor force are "exceptionally robust," combined with additional pushes from AI and energy on prices, making it difficult for the market to bet on a quick turn. Yet the reality of prices shows a different face—this week funds have clearly flowed from stocks to U.S. Treasuries, the yield on the 10-year U.S. Treasury bond has fallen to 4.82% by Friday, and traders have brought down rate hike expectations with real capital. The question is that the blank slate of non-farm remains above, any surprises on the labor front could rewrite the yield curve and global risk appetite within minutes, and the crypto market cannot remain outside of this. For BTC and ETH positions, this is not a determined "top in rates" situation but a repricing window that requires close attention to macro signals: first, watch the follow-up trajectory of the 10-year U.S. Treasury yield—whether the current decline extends into a "soft rate peak," or is rapidly reversed by a strong nonfarm report; second, monitor whether stocks and bonds continue to show a tear—if stocks remain under pressure while bonds strengthen, it indicates that funds are still on the defensive, not opening positions for high beta assets; third, pay attention to the marginal changes in dollar liquidity, and under this, whether the crypto ecosystem's leverage (funding rates, contract long-short imbalances) begins to become extremely crowded; fourth, observe the supply and net inflows/outflows of on-chain dollar-pegged tokens—are they flowing back to mainstream exchanges, or leaving the on-chain ecosystem? Only when declining yields, stabilized stock markets, improved dollar liquidity, net inflows into on-chain dollar-pegged funds, and relatively healthy leverage structures all occur simultaneously can BTC and ETH genuinely translate this round of "strong bonds and weak stocks" signals into a sustainably favorable risk appetite recovery.

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