BTC sets a new historical high, waiting for interest rate cuts to reach new heights

The performance of the risk asset market has been strong, surprising many investors and raising doubts about whether they have missed some important information.

After the rebound in April, the three major U.S. stock indices continued to rise strongly in May, while BTC hit a new historical high.

Despite some progress in the China-U.S. trade negotiations, a final agreement has not yet been reached. The Russia-Ukraine conflict is still ongoing.

However, a large amount of capital is flowing into the market, with net inflows for the BTC spot ETF exceeding $2.7 billion. Long-term holders' positions are nearing their peaks, the amount of BTC held on exchanges continues to decline, and the supply and demand for BTC is very strong.

In terms of policy, multiple states in the United States have approved BTC reserve bills, and the "GENIUS Act" has also passed Senate voting.

The U.S. employment data showed strong performance, inflation continues to decline, and GDP expectations are beginning to be revised upward. This may be the fundamental reason for the market's strength. However, the trade war has not yet ended, there are still risks in U.S. debt, and the gains in U.S. stocks and BTC this month have reflected the most optimistic expectations. The market may experience fluctuations and consolidation in the future, waiting for interest rate cuts in the third quarter.

Macroeconomics: Trade Friction May Lead to a "Mild Recession" in the U.S.

In April, we pointed out that "the most difficult period is over, and once policies return to rationality, the market will return to normal." It has been proven that geopolitical games and the constraints of the American democratic system have curbed extreme policies, and market expectations are gradually returning to rationality, ushering in a sustained rebound.

The continuous occurrence of the "stock-bond-currency" triple kill has triggered turmoil in the financial markets. Coupled with strong opposition from the business community, trade negotiations have quickly entered the second phase, and an agreement has been reached with the UK first.

In early May, China and the United States held the first round of trade negotiations in Switzerland, suspending the imposition of high tariffs, and committing to mutually reduce tariffs over the next 90 days while continuing discussions. On that day, the S&P 500 surged by 3.26%.

In April, US stocks recovered most of their losses, and in May, they continued to rise with the progress of negotiations. By the end of the month, the Nasdaq, S&P 500, and Dow Jones increased by 9.56%, 6.15%, and 3.94%, respectively.

The pricing in May has reflected the relatively "strong" performance of the US economy and employment. The economy contracted at an annual rate of 0.2% in the first quarter, slightly better than the initial estimate. The GDP Now data rebounded to 3.8% by the end of May, indicating optimistic sentiment.

Inflation continues to slow down, with the PCE annual rate dropping for three consecutive months to 2.15%, and core PCE falling to 2.52%, approaching the 2% target. Employment data exceeded expectations, with non-farm employment increasing by 177,000 in April.

The Federal Reserve has maintained interest rates for three consecutive months, emphasizing that tariff uncertainties may lead to a rebound in inflation. CME FedWatch shows that the market expects only two rate cuts of 25 basis points each in September and December this year.

We expect that in the next 2 months, the US stock market and BTC may maintain fluctuations, and the expectation of interest rate cuts in August may drive new highs. This judgment includes an optimistic conclusion to trade negotiations and a "mild recession" in the US economy.

Cryptocurrency: Capital inflow drives BTC to new highs

In May, BTC rose from $94,182 to $104,645, an increase of 11.11% for the month, with a volatility of 19.79%, and trading volume declining for two consecutive months.

BTC price broke through the "Trump Bottom", reaching a new high of 112,000 USD, and rose above the "first bullish uptrend line".

Retail buying power remains weak, with the daily new addresses for BTC at a low since March last year. Institutions have become the decisive force, with a certain company increasing its holdings by 134,000 BTC this year, bringing its total holdings to 580,000 BTC.

In January this year, the BTC spot ETF was approved, and in May, the Financial Innovation and Technology Act was passed, gradually establishing crypto assets as a key development area in the United States.

In March, the United States established a "strategic Bitcoin reserve", with multiple states proposing state-level reserve bills. In May, New Hampshire took the lead in incorporating cryptocurrency into reserves, and states like Texas are also advancing.

In terms of stablecoins, the "GENIUS Act" and the Hong Kong licensing system have been successively passed. Several major banks in the United States are exploring the launch of a joint stablecoin. Stablecoins are expected to become the first application in Web3 to surpass 1 billion users.

BTC and blockchain are becoming a crucial technological battleground in the United States, sparking an investment frenzy. The purchasing power driven by the expansion of use cases and regulatory breakthroughs is pushing prices up.

Capital: Optimistic Pricing + Scale Expansion

During the stock market crash from March to April, the inflow of BTC ETFs stagnated. In April to May, as the stock market rebounded, inflows resumed, reaching $605 million and $2.775 billion respectively, driving BTC to new highs.

Stablecoins flowed into $5.375 billion and $5.567 billion in April and May respectively, showing little change.

The pricing power of BTC has shifted to ETFs and institutions, showing characteristics of a long-term bullish trend. This is the reason for BTC's rapid rebound and also provides long-term positive support.

However, the US stock market has priced in an extremely optimistic outlook for trade negotiations, making it difficult to break through in the short term. BTC ETFs are unlikely to operate independently of the market, and it is overly optimistic to expect new highs in the medium to short term.

Chip Structure: Exchange BTC Inventory Continues to Decrease

During the decline from March to April, long-term investors increased their holdings again, playing a balancing role. By the end of May, the long-held amount reached 14.4199 million, close to the historical high, while the exchange inventory dropped to 2.9882 million.

After this round of "second sell-off", the market continues to rise, possibly due to the entry of institutions changing the market structure. It is necessary to closely monitor whether this change is sustained.

Conclusion

Although I am optimistic about BTC in the long term, the strength of its short-term performance has exceeded expectations. The main reasons are the excessive optimism in the risk market and the speculation frenzy triggered by BTC's expansion of use cases in the United States.

We believe the market is too optimistic about the pricing of trade negotiations, and there are still uncertainties. In addition, the expectations for interest rate cuts have been postponed.

Considering many uncertain factors, we believe that in the next two months, BTC is likely to fluctuate with the stock market, and the probability of hitting new highs is low. If everything goes well, it may reach a new level or in the third quarter.