jakiro
Author: @Web3Mario
summary: Recently, the market seems to have entered an unpredictable stage. Blue-chip cryptocurrencies have maintained high fluctuations, and the general direction is unresolved. The altcoin market has not ushered in the expected comprehensive bull market, while DAT assets or coin stocks are the leader in the traditional financial market.Before this, there were already many voices on social media, characterizing this bull market as driven by traditional funds.The author agrees with this judgment, and this part of the funds has several different characteristics compared with the past market cycle, such as decision-making is greatly affected by macro factors, low risk preference, relatively concentrated funds, weak spillover of wealth effects, and less obvious sector rotation.Therefore, when there are major changes in the macro environment, re-observing the change will help us make a correct judgment.In general, the author believes that as Powell adjusts the FED decision logic, the performance of the US job market will determine the market’s confidence in the September interest rate cut in the short term, which will affect the price of the risky asset market.
What has Powell’s speech changed
We know that in the months before this, the core game point of the market surrounding the macro economy was whether the FED under Powell could cut interest rates significantly within the year as the Trump administration wished. So first of all, why is the Trump administration eager to force the Fed to cut interest rates, and even risk affecting the independence of the Fed and thus affecting the credibility of the US dollar, and affecting the Fed’s decision-making through administrative power.In previous articles, we have analyzed the Trump administration’s adjustment goal of “manufacturing return” in US economic policies, and this goal has encountered two resistances in the actual implementation process:
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The internal costs are too high to cope with competition from competitors in the international market;
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Government debt is too high and there is no sufficient budget to incentivize industry return;
Observing the Trump administration’s six months in power, its policy implementation is roughly divided into two steps. First, at the beginning of election, it is necessary to fulfill its campaign promises as much as possible to enhance its authority in power, such as giving DOGE a large number of rights, changing cryptocurrency policy, etc. After consolidating the basic market, the Trump administration began the Thunderbolt method of tariffs. The reason why it is necessary to promote tariff policies after consolidating the basic market is that raising tariffs will cause market concerns about imported inflation, which will increase internal resistance.After gaining great authority, Trump’s tariff policy framework has been initially established and achieved results after months of negotiations.According to US Treasury Secretary Bescent, as of August 22, tariffs have brought nearly $100 billion in fiscal surplus to the United States in the past six months, and are expected to reach $300 billion this year.In addition, investment promises have been obtained from many countries, such as US$550 billion from Japan, US$600 billion and energy orders from the EU.
It can be said that although internal costs cannot be reduced immediately in a short period of time, such as labor costs, logistics costs, etc., because these costs require the United States to reset the cost of various factors through the market clearance of a Great Depression, the Trump administration has changed the domestic market competition structure and capital structure to a certain extent through tariffs. Therefore, it is appropriate to start the next policy, that is, FED interest rate cuts.
So what can interest rate cuts change?There are two main points. First, it alleviates debt pressure. We know that during the term of the previous Treasury Secretary Yellen, the U.S. Treasury Department’s issuance structure has increased the issuance of short-term bonds, and Becent has retained this decision. The advantage of doing this is that short-term bond interest rates are regulated by the Federal Reserve, reducing the drag on the fiscal year by long-term bonds. From the current situation, the market demand for short-term US bonds is strong, which is conducive to reducing financing costs. However, the problem is also obvious, which is that it shortens the debt duration and the repayment pressure rises in the short term. This is why recent negotiations on debt ceiling have become more popular.The interest rate cut means that the pressure on interest payment from short-term bonds has become lower.The second interest rate cut will reduce the financing costs of small and medium-sized enterprises and help establish the industrial chain. We know that compared with large enterprises, small and medium-sized enterprises usually rely more on banks’ debt financing to obtain funds for turnover. Therefore, in a high-interest environment, the willingness of small and medium-sized enterprises to expand financing will be hit. After changing the domestic market competition structure through tariffs, it is also urgent to encourage small and medium-sized enterprises to expand production and help them quickly fill the vacancies in the market and avoid inflation.Therefore, in summary, the Trump administration will spare no effort to suppress the Fed’s interest rate cut at this time, rather than smoke bombs.
Whether it is the active intervention in the renovation of the Fed’s headquarters building or the unremitting attacks on the extreme left, progressive, and hawkish Cook directors, they are proof of the Trump administration’s active promotion, and these methods seem to have confirmed the effect in Powell’s speech at Jackson Hall at the Global Central Bank Annual Meeting last week.What surprised the market the most throughout the speech was that Powell, who has always expressed his defense of the independence of the Federal Reserve, seemed to succumb to Trump’s strong pressure.There are several core points in his speech that can be used to express his attitude:
1. It is clear that risks in the US economy have shifted from inflation to the employment market;
2. The impact of tariffs on inflation will take some time to show, and it is not a factor that triggers a spiral of inflation;
3. Update of the monetary policy framework, interestingly, is the reduction of the lower limit of effective interest rates as an emphasis on the “characteristics under normal economic conditions”.
In layman’s terms, the Fed is no longer worried about inflation caused by tariffs, and instead worry about the collapse of the job market caused by the recession. At the same time, the level of interest rate cuts can be regarded as unlimited.The description of effective interest rates can be mentioned here. The so-called effective interest rate refers to the fact that when the central bank uses conventional monetary policy (mainly adjusting short-term policy interest rates), when the interest rate is lowered to a certain level, the continued reduction will have no impact on the economy.This change is in line with the core of Trump’s policy, because it can be said that this “two-way trip” has also aroused the market’s expectations for further liquidity easing.
Impact on the cryptocurrency market
We know that the cryptocurrency market is usually regarded as a canary of speculative sentiment in the global risk asset market, so after the speech was announced, the cryptocurrency has risen, and the subsequent pullback shows that the market has priced a certain degree of interest rate cuts before this. After determining the new trading logic, the market has changed from the initial emotional expectation to rational expectation, so it is necessary to obtain sufficient proof to evaluate the degree of interest rate cuts.
As for how deep the pullback will be, I think the trend of the most popular ETH in the past period is worth paying attention to. The author believes that as long as the price does not fall below this upward channel in the short term, it proves that investors’ sentiment has not shown a significant reversal, so the risks are controllable.In the next week, indicators related to the employment market will significantly affect the cryptocurrency trend, especially the non-farm employment data next Friday, which will bring great volatility to the market. If the employment data is less than expected, the probability of the Fed’s interest rate cut in September will be greatly increased. If it exceeds expectations, it indicates the resilience of the US job market, and the pressure of interest rate cuts will be obtained from the market, and the market may further pull back.In any case, the recent policy market reminds me of the market dominated by CPI in 2023.
