1. Interpretation of the Federal Reserves interest rate meeting: Policy stability, market expectations adjustment
The Fed decided to maintain the target range of the federal funds rate at 4.25%-4.50% in its latest interest rate meeting. This decision was in line with market expectations, but its policy wording, economic forecasts, and guidance on the future interest rate path had a profound impact on the market. This meeting not only revealed the Feds latest judgment on the current economic environment, but also affected the markets expectations for future liquidity conditions, which directly affected global asset markets including cryptocurrencies. Below, we will interpret in detail the core content of the Feds decision and its direct impact on the market.
1.1. The core content of the Fed’s decision: maintaining a prudent policy but sending a signal of easing
The Fed decided to keep the benchmark interest rate unchanged at this meeting, and emphasized in the post-meeting statement that the policy stance remains restrictive to ensure that inflation returns to the 2% target. This statement shows that the Fed still believes that the current inflation level is not enough to support an immediate rate cut, but compared with the past few meetings, the wording of this resolution has softened. For example, in previous meeting statements, the Fed has repeatedly emphasized that a longer restrictive policy is needed, but at this meeting, this statement was weakened, and it was emphasized 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.
In addition, the Fed slightly lowered its GDP growth forecast in its latest economic forecast and raised its inflation forecast for the next few years, showing that policymakers are weighing the contradiction between economic slowdown and inflation stickiness. For example, the Fed expects US GDP growth in 2025 to be lowered from the previous forecast of 2.1% to 1.8%, while the core PCE (the inflation indicator favored by the Fed) in 2025 was raised from 2.2% to 2.4%. This forecast adjustment reflects the Feds cautious attitude towards the future economic situation, that is, despite the slowdown in economic growth, inflation is still sticky, so there will be no rash rate cuts in the short term.
Another key point worth paying attention to is the Feds balance sheet policy. Since the launch of the balance sheet reduction in June 2022, the Fed has reduced its Treasury bonds by up to $60 billion and MBS (mortgage-backed securities) by up to $35 billion per month. At this meeting, the Fed announced that the pace of balance sheet reduction will be reduced from $60 billion to $50 billion. Although this adjustment is not large, it sends a signal that the liquidity tightening cycle is about to slow down. The Feds balance sheet reduction is an important factor affecting market liquidity because it directly determines the supply of US dollars in the market. In the past two years, due to the Feds tightening policy, a large amount of liquidity has been withdrawn from the market, causing pressure on the U.S. stock market and the crypto market. The slowdown in the pace of this balance sheet reduction means 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 policy direction of the Federal Reserve. At this meeting, the dot plot showed that the median interest rate expectation of FOMC members in 2025 was 3.75%, which means at least two interest rate cuts. Although this expectation is basically consistent with the markets previous expectations, there are still differences in details. Some officials expect interest rate cuts to begin as early as the fourth quarter of 2024, while others believe that interest rate cuts will not occur until mid-2025. This divergence shows that there are still different views within the Federal Reserve on the stickiness of inflation, which will also lead to greater uncertainty in the future policy path.
Overall, although the Fed kept interest rates unchanged at this meeting, it released a series of easing signals: softening of wording, slowing balance sheet reduction, downward revision of economic growth expectations, and the dot plot showing the path of interest rate cuts. These factors combined have caused the market to begin to reassess the future monetary policy environment and directly affected asset price trends.
1.2. The direct impact of the Fed’s policies on the market: the liquidity inflection point is approaching, and risk assets are ushering in a turnaround
The impact of the Feds policy adjustment on the market can be analyzed from multiple dimensions, especially the US dollar index (DXY), US bond yields, stock markets and cryptocurrency markets. After the announcement of this resolution, the immediate market reaction showed that investors expectations for improved liquidity are increasing, which also indicates that high-risk assets such as Bitcoin may usher in a rebound cycle.
First, the US dollar index (DXY) fell sharply. The US dollar index is an important indicator for measuring global capital flows. After the Federal Reserve hinted that it might slow down its tightening pace in the future, the US dollar index quickly fell back, recording its largest single-day drop since 2023. A weaker dollar usually means that global capital is more willing to flow into high-yield assets, which supports risky assets such as US stocks, gold and Bitcoin. In the past two years, as the Federal Reserve continued to raise interest rates, the US dollar index remained strong, resulting in capital outflows from emerging markets and pressure on risky assets. Now, with the change in the tone of the Federal Reserves policy, the market has begun to expect that the strong cycle of the US dollar may be coming to an end, which will be conducive to more capital inflows into crypto assets such as Bitcoin.
Secondly, the U.S. Treasury yields are going down, and the turning point of interest rate expectations is emerging. Changes in U.S. Treasury yields are usually seen as the markets prediction 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 digesting the possibility of future interest rate cuts in advance. For the stock and crypto markets, lower U.S. Treasury yields mean lower funding costs, thereby increasing the attractiveness of risky assets. Historical data shows that when U.S. Treasury yields fall, Bitcoin tends to perform strongly because it means that the markets liquidity environment is improving.
In the US stock market, especially technology stocks and growth stocks, there has been a strong rebound. The Feds policy adjustment has a particularly significant impact on technology stocks, because technology companies usually rely on lower financing costs, and the rising expectations of interest rate cuts have caused investors to flock back to these stocks. The Nasdaq index rose by more than 2% after the interest rate meeting, and the stock prices of growth companies such as Tesla and Apple also rebounded. This trend is a positive signal for the crypto market, because the correlation between technology stocks and Bitcoin has continued to increase in recent years, and the linkage between the two in terms of capital flows has become increasingly obvious.
The crypto market also reacted quickly. Bitcoin prices rose by more than 5% in the short term after the Feds decision was announced, breaking through the key resistance level of $85,000. Mainstream currencies such as Ethereum also rose simultaneously, reflecting that the markets expectations for loose liquidity are strengthening. If the Fed further releases easing signals in the coming months, Bitcoin may usher in a new round of rising prices and may even break through previous highs.
Overall, although the Feds policy decision did not immediately adjust interest rates, the signals it released had a far-reaching impact on the market. The weakening of the US dollar, the decline in US bond yields, the rise in technology stocks, and the rebound in Bitcoin all indicate that the market is gradually adjusting its expectations for liquidity. For investors, this means that the liquidity inflection point may be approaching, and high-risk assets such as Bitcoin may usher in a new round of rising cycles.
2. Market macro background: Liquidity inflection point has arrived, funds may flow back to risky assets
In the past two years, the global financial market has experienced an unprecedented round of liquidity tightening. The Federal Reserve has started a cycle of interest rate hikes since March 2022, and at the same time implemented a large-scale balance sheet reduction (QT), which has caused a dramatic change in the funding environment of the global market. This policy has led to a decline in US dollar liquidity, an increase in capital costs, and a sharp correction in the prices of risky assets. As a high-risk and highly elastic asset class, Bitcoin has experienced severe market shocks in this process. However, as the Federal Reserve slows down the pace of balance sheet reduction in 2024, the flow of market funds is undergoing subtle changes, and the liquidity inflection point may have quietly arrived.
2.1. Analysis of recent liquidity environment: The market capital inflection point has appeared, and a large amount of off-market funds are waiting to enter the market
In the context of the collective tightening of global central banks in 2022-2023, market funds tend to be conservative and the valuation of risky assets is severely suppressed. However, multiple data indicators since 2024 show that the liquidity environment is changing. The recent analysis of the Coinbase research team believes that Bitcoin may bottom out and rebound in the next few weeks, and its main basis is as follows:
First, the pace of global liquidity tightening is slowing down. In the past two years, due to the interest rate hikes by major central banks such as the Federal Reserve and the European Central Bank, global financial markets have experienced severe capital outflows and deleveraging, causing pressure on both the stock market and the crypto market. However, at the March 2024 interest rate meeting, the Federal Reserve made it clear that the pace of balance sheet reduction will slow down, and the dot plot shows that there may be 2-3 interest rate cuts in the next 12 months. This means that the tightening of restrictive monetary policy in the past two years is weakening, and market liquidity may improve.
Secondly, the linkage between the US stock market and the crypto market has increased, and the crypto market has become more sensitive to changes in macro liquidity. The 90-day rolling correlation between Bitcoin and US stocks (especially the Nasdaq index) reached a high of 0.75 in 2024, showing that the linkage between the two has increased significantly. In other words, the performance of technology stocks has an increasing impact on Bitcoin, and technology stocks are extremely sensitive to interest rates. As the market adjusts to the future policies of the Federal Reserve, technology stocks have begun to rebound, and this trend is likely to drive the price of crypto assets such as Bitcoin to warm up.
In addition, investors risk aversion has increased, causing institutions to reduce their allocation to crypto assets, but the market structure remains healthy. In the second half of 2023, due to the rapid rise in U.S. Treasury yields, the markets expectations of long-term high interest rates have caused most institutional investors to reduce their allocation to crypto assets. Hedge funds and traditional institutions have shifted funds to low-risk assets such as short-term U.S. Treasury bonds and money market funds, resulting in a decline in liquidity in the Bitcoin market and a decrease in trading volume. However, it is worth noting that there is no systemic risk in the market, the structure of the crypto market is still relatively healthy, and the markets capital inflows to BTC spot ETFs remain robust, indicating that institutions are still looking for the right time to enter the market.
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 the market. Historical data shows that the supply of stablecoins is closely related to the flow of funds in the crypto market. When the total market value of stablecoins grows, it often means that the crypto market is about to usher in new incremental funds. At present, the total balance of USDT (Tether) and USDC has continued to grow since the end of 2023, indicating that a large amount of funds are waiting on the sidelines. Once the market trend is determined, these funds may quickly flow back to Bitcoin and other crypto assets.
Overall, although the crypto market is still affected by macroeconomic uncertainties, the pressure of global liquidity tightening is easing, and there is still a large amount of funds waiting to enter the market. If the Federal Reserve continues to release dovish signals in the coming months and global liquidity improves, the crypto market is expected to usher in a new rebound cycle.
2.2. The relationship between US dollar liquidity and the crypto market: Historical data reveals the trend of BTC
From historical data, the tightness of US dollar liquidity is highly correlated with the performance of the Bitcoin market. Specifically, in a low-interest rate and loose monetary environment, Bitcoin often sees a sharp rise, while in a high-interest rate and tight policy environment, Bitcoin faces huge pressure. We can divide this trend into the following three stages:
Phase 1: 2017-2021 — Loose cycle drives BTC bull market
From 2017 to 2021, the Federal Reserve maintained low interest rates and QE (quantitative easing) policies, and global market liquidity was extremely abundant. During this period, institutional investors interest in risky assets increased significantly, and Bitcoin ushered in two rounds of bull markets:
In 2017, the price of BTC rose from $1,000 to $20,000, an increase of more than 20 times.
In 2020-2021, the Federal Reserve adopted zero interest rate + unlimited QE due to the epidemic, and the price of Bitcoin soared from US$4,000 to US$69,000, setting a record high.
Phase 2: 2022-2023 — Tightening policies lead to a sharp drop in BTC
In 2022, the Federal Reserve raised interest rates aggressively (11 times in total, raising the interest rate from 0.25% to 5.5%) and simultaneously implemented a large-scale balance sheet reduction, leading to a global liquidity crunch. As a highly volatile asset, Bitcoin suffered a sharp correction during this period, with a full-year decline of more than 60%. Institutional investors withdrew and market trading volume dropped significantly.
Phase 3: 2024-2025 — Balance sheet shrinkage slows down, BTC recovers
As the Fed slows down its balance sheet reduction in 2024, market liquidity is seeing signs of improvement. Historical experience shows that when liquidity pressure eases, BTC will enter a new round of rising cycles as market funds return. If the Fed starts to cut interest rates or adopt a looser policy before 2025, Bitcoin may usher in a bull market based on the recovery of liquidity.
Currently, the Fed is at a critical stage of policy shift. Although it has not yet entered a rate cut cycle, the slowdown in balance sheet reduction, the decline in the US dollar index, and the growth in stablecoin balances all indicate that the liquidity inflection point has emerged. If the Fed continues to release easing signals in the coming months, the crypto market is expected to attract more capital inflows, and Bitcoin, as a liquidity barometer among risky assets, will benefit first and usher in a new round of rising prices.
3. Bitcoin market outlook: the possibility of bottoming out and risk factors
The recent price fluctuations in the Bitcoin market, institutional capital flows, and the macroeconomic environment all indicate to some extent that the market may be in the bottoming stage and is expected to rebound against the backdrop of a recovery in liquidity. However, investors still need to be wary of uncertainties in the market, including the direction of the Feds policy, geopolitical risks, and potential risks within the crypto market.
3.1. Analysis of Bitcoin’s short-term price trend: bottoming signals are strengthening, and technical aspects show rebound potential
From a technical analysis perspective, Bitcoins recent market trend shows signs of strengthening bottom support, and multiple technical indicators indicate that the market may be approaching a turning point.
First, the critical support level of $76,000-$80,000 forms the market bottom.
In the past few weeks, the price of Bitcoin has tested the $76,000-$80,000 range several times, but failed to effectively break below it, indicating that there is strong buying support in this area. From the historical data, this range is also the cost area for a large number of BTC spot ETF funds to enter the market, and the intervention of institutional funds has strengthened the support. In addition, on-chain data analysis shows that there is a large accumulation of UTXO (unspent transaction output) of long-term holders in this range, indicating that the holders have strong confidence and there has been no large-scale panic selling.
Secondly, the RSI (Relative Strength Index) rebounded and market momentum was restored.
The RSI indicator (Relative Strength Index) is usually used to measure overbought or oversold conditions in the market. When the RSI is below 30, the market enters an oversold state, which means that it may bottom out and rebound. Recently, the Bitcoin RSI indicator rebounded from around 30 to the 45-50 range, indicating that market momentum is recovering and bullish power is gradually increasing. In addition, the RSI rebound is usually accompanied by a gradual stabilization of prices, indicating that market buying is increasing.
Third, trading volume is gradually increasing, and market liquidity is recovering. In the bottoming stage, changes in trading volume are crucial. Recently, Bitcoins trading volume in key support areas has increased, indicating that market buying is intervening rather than simply selling. In the past few weeks of low-level fluctuations, Bitcoins trading volume has gradually increased, indicating that there are signs of capital inflows in the market. Once market sentiment turns optimistic, incremental funds may accelerate the push of Bitcoin out of the range of fluctuations.
On the whole, if the Federal Reserve maintains its current monetary policy unchanged and market liquidity further picks up, Bitcoin may maintain a volatile bottoming structure in the short term and usher in a rebound in the second quarter.
3.2. Market trends of institutional investors: capital inflows strengthen market support
The movements of institutional investors play a vital role in the medium- and long-term trend of the Bitcoin market. In recent years, with the launch of Bitcoin spot ETFs, more and more traditional financial institutions have participated in the Bitcoin market, and their capital flows have become an important indicator of market sentiment.
First, Grayscales BTC holdings remain stable, and there has been no large-scale sell-off. As one of the worlds largest Bitcoin trust funds, Grayscales BTC holdings are seen as an important indicator of the market. In the first quarter of 2024, Grayscales BTC holdings remained stable, and there was no large-scale capital outflow, indicating that institutional investors did not panic sell due to short-term market fluctuations. In contrast, in the past few years, when the market was extremely volatile, Grayscales capital outflows usually exacerbated the decline in Bitcoin prices. In this round of adjustments, Grayscales holdings have become more stable, indicating that institutional investors are still optimistic about the long-term value of BTC.
Secondly, the flow of funds from Bitcoin spot ETFs shows that institutions are increasing their holdings of BTC. Bitcoin spot ETFs are one of the most important channels for capital inflows in the market in 2024. Institutional investors are still buying on dips. This is in stark contrast to the massive capital outflows during the Feds tightening cycle in 2022-2023. The continued inflow of ETF funds not only provides market buying support, but also strengthens the markets confidence in the long-term trend of BTC.
Third, MicroStrategy continues to increase its holdings of BTC, and institutions remain confident in its long-term value. As one of the worlds largest corporate BTC holders, MicroStrategy has recently increased its holdings of BTC again, and its total holdings have exceeded 214,000 BTC. This shows that despite the short-term volatility of the market, some institutional investors are still willing to hold BTC for a long time and regard it as an important asset allocation tool. MicroStrategys increase in holdings not only boosted market confidence, but also sent a signal to other institutions about the long-term investment value of BTC.
Overall, the continued inflow of funds from institutional investors has provided strong medium- and long-term support for BTC prices and enhanced the markets rebound momentum.
3.3. Possible market risks: Uncertainties still exist and we need to be alert to sudden shocks
Although the market is showing signs of bottoming out, there are still several risk factors that could affect Bitcoins short-term trend.
First, the uncertainty of the Feds policy. Although the market generally expects the Fed to cut interest rates in the second half of 2024, if inflation data rebounds, the Fed may postpone the rate cut or even further tighten liquidity. For example, if the CPI (Consumer Price Index) data rises beyond expectations in the future, the Fed may turn back to a hawkish stance, leading to a deterioration in market sentiment and pressure on risky assets. In this case, Bitcoin may face further adjustment pressure.
Second, global geopolitical risks may affect investors risk appetite. In recent years, geopolitical events have had an increasing impact on financial markets. For example, the Russia-Ukraine conflict, tensions in the Middle East, and instability in the Asia-Pacific region will all affect global investors risk appetite. If market risk aversion rises, funds may flow to traditional safe-haven assets such as U.S. bonds and gold, while high-risk assets such as Bitcoin may face short-term selling pressure.
Third, liquidity risk within the crypto market. In addition to macroeconomic factors, there may also be potential risks within the crypto market. For example, if some exchanges have liquidity problems or liquidation risks, it may trigger short-term sharp fluctuations in the market. In addition, if large institutional investors sell BTC due to liquidity needs, it may also pose a shock to the market. Therefore, investors still need to pay close attention to on-chain data, exchange fund flows, and leverage in the derivatives market to determine whether there are potential risks in the market.
Currently, the Bitcoin market is in a stage of strengthening bottom support, institutional capital inflows, and improved liquidity environment. The market is waiting for new catalysts to push prices out of the oscillation range. However, investors still need to be wary of the uncertainty of the Feds policies, geopolitical risks, and internal liquidity risks in the crypto market, which may affect the short-term market trend.
From the overall trend, if market liquidity continues to improve and institutional funds continue to flow in, Bitcoin is expected to usher in a round of rebound in the second quarter. However, before the key resistance level is effectively broken, the market may still maintain a volatile trend. Investors need to pay close attention to macroeconomic data, ETF fund flows and market trading volume in the next few months to determine whether Bitcoin has entered a new round of rising cycle.
IV. Investment Strategy and Conclusion
In the current market environment, investors should adjust their investment strategies according to their different investment styles, risk tolerance and understanding of the market. The continued stabilization of the Feds policies, the gradual improvement of the liquidity environment, and the rebound signals of the Bitcoin market all provide investors with different opportunities and challenges. In order to obtain better investment returns in this volatile market, investors must flexibly adjust their strategies and pay close attention to changes in the macro economy and market trends.
4.1. How should investors deal with the current market?
Strategies for short-term traders: For short-term traders, the market is volatile and technical analysis is particularly critical. The key support level of $80,000 is a very important reference point in the short-term fluctuations of Bitcoin prices. If the price of Bitcoin loses this area, short-term traders should consider short-term stops to avoid the risk of losses from further market declines. At the same time, once the market shows signs of stabilization, short-term traders can wait for Bitcoin prices to break through the $88,000 area and get confirmation, then they can add positions to provide profit opportunities for subsequent price increases.
However, short-term trading is riskier, especially when the liquidity of the crypto market is still not completely stable, so traders should strictly set stop-loss points to avoid over-exposure. The technical signals of the market, especially when the price breaks through the key resistance range, can help short-term investors grasp the price fluctuation trend in the short term. In addition, short-term traders should pay close attention to the release of macroeconomic events, such as US non-farm data, CPI and the Federal Reserves policy meetings, which can have a significant impact on market volatility.
Strategies for medium and long-term investors: For medium and long-term investors, the current market still has great upside potential, especially when the liquidity environment gradually warms up. Compared with short-term traders, medium and long-term investors can wait more patiently for the opportunity for the market to rebound. The current Bitcoin price may be at a relative bottom area, and the liquidity inflection point of the market has arrived. Medium and long-term investors can build positions in batches when the price falls back, gradually accumulate assets, especially near key support areas (such as the $88,000-$83,000 range), which will lay a solid foundation for future rebounds.
As the Fed slows down its balance sheet reduction and market liquidity gradually improves, medium- and long-term investors are expected to benefit from the future rebound cycle. When building a position, investors should pay attention to the long-term trend of BTC and changes in market sentiment, and try to avoid the impact of sharp fluctuations in short-term market sentiment on investment decisions. As the Bitcoin market gradually regains confidence, medium- and long-term investors will receive relatively stable returns.
Institutional investors’ strategies: Institutional investors usually have stronger financial strength and risk management capabilities, so their investment strategies tend to focus on the accumulation of long-term value and adopt relatively conservative operating methods. In the current market environment, institutional investors should pay close attention to changes in the Fed’s policies, especially possible monetary easing signals in the future. If the Fed decides to increase monetary easing or cut interest rates, this will bring more capital inflows to risky assets, including Bitcoin.
At the same time, institutional investors can 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 obtain generous returns when prices rebound, but also avoid potential risks of traditional financial assets, such as inflation and uncertainty in global markets.
4.2. Future market outlook
From the perspective of the overall market performance, with the gradual stabilization of the Feds policy and the recovery of the liquidity environment, the possibility of Bitcoins short-term rebound and medium- and long-term rise is gradually increasing. Although the market is still facing the impact of risk factors, especially macroeconomic uncertainty, geopolitical risks and potential liquidity problems in the crypto market, the expectation of the Feds loose policy and the continued inflow of funds from institutional investors still bring new opportunities to the Bitcoin market.
First, the prospect of improving market liquidity is bright. As the Fed slows down its balance sheet reduction, market liquidity is expected to gradually pick up, especially in the short term, the loose trend of the US dollar may provide more funds to flow into risky assets. Bitcoins historical trend shows that in an environment of loose US dollar liquidity, BTC tends to perform strongly. Therefore, in the case of a positive macroeconomic environment, Bitcoin is expected to rebound in the coming weeks and provide investors with profit opportunities.
Second, Bitcoin is expected to enter a new round of rising cycle. Supported by the liquidity environment, the price of Bitcoin is likely to break through the target area of $85,000-$88,000 and usher in a new round of rising cycle. However, this process may also face technical shock consolidation, and as the price breaks through the key resistance level, the market still needs to face repeated fluctuations in capital allocation and market sentiment.
Third, market risks still exist. Although the market is expected to pick up, investors still need to pay attention to the fine-tuning of the Feds policies and changes in the global economy. In particular, the rebound of inflation or the intensification of international conflicts may cause the Fed to re-tighten monetary policy, which will put pressure on risky assets such as Bitcoin. Therefore, investors must remain vigilant, pay close attention to the dynamic changes in the market, and adjust their investment strategies in a timely manner.
Overall, with the Federal Reserves policy maintaining stability and the liquidity environment gradually improving, the Bitcoin market has a relatively optimistic outlook, but the market volatility is still large, and investors should make reasonable asset allocation based on their own risk tolerance and market trends.
