BTC hits a new all-time high, the market awaits interest rate cuts and further pump

Recently, the risk asset market has performed strongly, surprising many investors. After a rebound in April, the three major U.S. stock indices continued to rise in May, while Bitcoin reached a new all-time high.

Despite the ongoing uncertainty in the geopolitical situation, funds are pouring into the cryptocurrency market. The net inflow of Bitcoin spot ETFs has exceeded $2.7 billion. Long-term holders are nearing their peak positions, and the stock of Bitcoin on exchanges continues to decrease, indicating a strong supply-demand relationship.

In terms of policy, some states in the United States have made breakthrough progress on Bitcoin reserve bills. Legislation related to stablecoins has also been passed in the Senate.

The U.S. employment data performed strongly, inflation continues to decline, and GDP expectations have begun to be revised upward. These may be the fundamental reasons driving the market higher. However, concerns in the U.S. bond market remain unresolved due to tariff issues, and this month's market rise has already reflected a more optimistic outlook. There may be fluctuations in the future to digest various uncertainties until the interest rate cut expectations for the third quarter are realized.

Macroeconomic Finance: Tariff Shock May Lead to Mild Recession in the U.S.

The global geopolitical game is tending to ease, and the political situation in the United States is gradually returning to rationality. Market expectations are returning to normal, driving asset prices to continue rebounding, reflecting a relatively optimistic outlook.

The market turmoil caused by tariff issues has prompted stakeholders to reconsider negotiations. In early May, major economies held the first round of trade talks in Switzerland, temporarily alleviating the tensions of the tariff war. Both sides committed to mutually lowering the previously imposed high tariffs within 90 days and will continue to negotiate on economic and trade relations. This news propelled the S&P 500 index to rise by 3.26% on that day.

At the beginning of April, with the softening of tariff policies, the US stock market began to rebound, basically recovering the previous losses. In May, with the start of formal trade negotiations, the US stock market gained further momentum to continue rising. By the end of the month, the Nasdaq index, S&P 500 index, and Dow Jones Industrial Average recorded monthly rises of 9.56%, 6.15%, and 3.94%, respectively.

The rebound in April can be seen as a response to the waning panic sentiment and the softening of policies, representing a quick pricing after the end of the first phase of the tariff war. The rise in May reflects the market's optimistic expectations regarding the negotiation phase of the tariff war. Based on the current public information, this pricing is already quite sufficient and optimistic. Without new developments in tariff negotiations, a Federal Reserve rate cut, or significant breakthroughs in geopolitical situations, continuing to rise sharply may lack caution.

The asset prices in May have already reflected the relatively strong fundamentals of the US economy and employment performance.

Latest economic data shows that the U.S. GDP shrank by 0.2% on an annualized basis in the first quarter, slightly better than the previously announced preliminary value (a shrinkage of 0.3%), but still indicating that the decline in consumer spending and imports at the beginning of the year has had a certain impact on the economy.

After being undervalued for the past few months, GDP expectations have rebounded. The GDP Now indicator from the Atlanta Federal Reserve shows that data has returned to positive territory since the end of April, reaching 3.8% by the end of May, reflecting optimistic sentiment following the easing of the trade war.

The PCE data released in May shows that inflation continues to slow down. The PCE annual rate has decreased for three consecutive months to 2.15%, and the core PCE has fallen to 2.52%, a new low since the pandemic, gradually approaching the Federal Reserve's 2% inflation target.

Employment data exceeded market expectations. In April, non-farm payrolls increased by 177,000, higher than the expected 138,000. For the week ending May 24, the number of initial claims for unemployment benefits was 240,000, higher than the previous week and market expectations. The strong performance of the employment data has alleviated concerns about an economic recession on one hand, and on the other hand, it also supports the Federal Reserve's continued focus on inflation targets.

The Federal Reserve kept interest rates unchanged this month, marking the third consecutive month of pausing rate hikes. Although the Fed released some easing signals during the financial market turmoil, it withstood pressure and remained inactive after the market stabilized, emphasizing that the uncertainty caused by tariffs could lead to a rebound in inflation.

The financial market is performing strongly, coupled with the fact that tariff issues have not been fully resolved, inflation may rebound. The market expects that the Federal Reserve is unlikely to initiate interest rate cuts in the first half of the year. Currently, traders anticipate only two rate cuts this year, in September and December, each by 25 basis points. This expectation somewhat limits the space for liquidity to push asset prices to rise significantly further.

Based on the current data and situation, it is judged that US stocks and Bitcoin may maintain fluctuations for the next two months until the interest rate cut expectations in August could drive new highs. This judgment includes an optimistic resolution of the tariff issue and a relatively mild recession in the US economy.

The GDP of the United States recorded a decline of -0.21% in the first quarter, and the decline in consumer confidence and market turmoil caused by tariff issues in the second quarter may lead to a slight drop in GDP, reaching the standard of "mild recession". Therefore, starting interest rate cuts in September may be a more cautious expectation.

Crypto Assets: Strong Capital Inflows Drive Bitcoin to New Highs

In May, Bitcoin opened at $94182.55 and closed at $104645.87, rising by $10463.33 for the month, an increase of 11.11%, with a volatility of 19.79%. The trading volume has decreased for two consecutive months.

From a technical indicator perspective, after Bitcoin's price returned to the $90,000-$110,000 range in April, it broke through the historical high of $112,000 and stood above the "first bullish ascending trend line."

In a high interest rate environment, retail investors have not formed a decisive buying power, and since March of last year, the daily number of newly created Bitcoin addresses has remained low.

In this round of rebound, institutions have become the decisive force. A certain technology company has increased its holdings by 133,850 BTC this year, bringing its total holdings to 580,250 BTC.

Since the approval of 11 Bitcoin spot ETFs in January 2024, crypto assets have gradually become a key development area in the United States. In March 2025, the U.S. government established a "Strategic Bitcoin Reserve," designating approximately 200,000 BTC as national reserve assets. Subsequently, multiple states proposed state-level Bitcoin reserve bills. On May 7, New Hampshire became the first state in the nation to officially include cryptocurrencies in its strategic reserves.

In terms of stablecoins, the U.S. Senate has passed a bill to regulate the development of stablecoins. Hong Kong has also officially implemented a licensing system for fiat-backed stablecoin issuers. Several major banks in the U.S. are exploring partnerships to launch a joint stablecoin.

Stablecoins with an issuance scale exceeding 240 billion USD will enter the era of compliant development. Stablecoins are expected to become the second widely adopted crypto asset after BTC, potentially becoming the first application in the Web3 space to break 1 billion users. This lays the foundational use case for the development of blockchain, especially smart contract platforms.

Bitcoin and blockchain are becoming the technological high ground that the United States must occupy. The investment frenzy triggered by this trend is spreading. Many companies are launching accumulation plans for Bitcoin and other crypto assets.

The investment sentiment driven by use case expansion and compliance breakthroughs has become a fundamental driving force behind the rise in the prices of Bitcoin and other crypto assets.

Capital: Optimistic Pricing and Scale Expansion

During the decline of the U.S. stock market from March to April, the inflow of Bitcoin spot ETFs was paused, causing Bitcoin to adjust over 30% alongside the stock market. As the stock market rebounded in April and May, the buying power of Bitcoin ETFs strongly recovered, with net inflows of $605 million and $2.775 billion respectively, driving Bitcoin to recover its losses and reach a new high of $112,000.

In terms of stablecoins, $5.375 billion and $5.567 billion flowed in in April and May respectively, which is relatively small compared to the fluctuations of Bitcoin ETFs.

The pricing power of Bitcoin has shifted from on-site funds to ETF channel funds and institutional investors. These institutions exhibit a long-term bullish characteristic, as Bitcoin continues to make breakthrough progress at the policy level in the United States. This is both the reason why Bitcoin was able to rebound quickly and reach new highs in April and May, and the logical support for long-term optimism.

However, it should be noted that the US stock market has priced in tariff issues extremely optimistically and may imply expectations that the US economy will not significantly decline. It is difficult for the US stock market to break through new highs, and fluctuations are inevitable. Although institutional funds continue to flow in, Bitcoin ETF is hard to develop an independent market, so it may be overly optimistic to expect Bitcoin to reach a new high in the short term.

Chip Structure: The Bitcoin supply on exchanges continues to decline

In the decline from March to April, long-term investors have increased their holdings again, which objectively helps to reduce market selling pressure.

As of the end of May, the holdings of long-term holders reached 14.4199 million coins, nearing a historical high. In contrast, the inventory on centralized exchanges continues to decline, currently only remaining at 2.9882 million coins, close to the level of November 2020.

In the previous cycle, when liquidity surged, long-term holders choosing to sell would curb the price rise, but during the downturn in the cycle, long-term holders would slow down their selling or choose to increase their holdings, and this cycle is no exception.

Unlike in the past, where the "secondary sell-off" by long-term holders often ended the bull market, this time the market continued to rise after the "secondary sell-off". This may be due to the entry of new institutional investors into the structure of long-term holders, thereby changing the market trend. Whether this change is permanent still requires further observation.

Conclusion

Although we remain optimistic about the application prospects and long-term trends of BTC, the strength of BTC's price movement in the short term still exceeds expectations.

The reason lies in the excessive optimism in the risk asset market, as well as the investment boom triggered by Bitcoin's significant application breakthroughs in the U.S. We are confident about the latter, but believe the market's pricing of tariff issues may be overly optimistic, and there may still be ups and downs in between. In addition, we have lowered our expectations for the Federal Reserve to cut interest rates.

In March, we expected Bitcoin to start a reversal trend in the summer, but the market reacted beyond expectations, reaching a new high in May. Considering various uncertainties and delayed liquidity expectations, we believe Bitcoin may fluctuate with the stock market in the next two months, with a lower probability of reaching new highs.

If everything goes smoothly, the rise of Bitcoin to a new level might happen in the third quarter.