Resilience awaits the Fed to cut interest rates BTC will meet the fourth wave of the cycle in Q3

Written by: 0xWeilan

As BTC is accepted by numerous countries, growing into an asset with a market value exceeding 2 trillion dollars and a 24-hour trading volume of hundreds of billions of dollars in spot and derivatives, the influencing factors of its price and cycles have become more diverse.

This month's BTC price has shown a complex situation influenced by multiple factors such as "tariff conflicts, geopolitical conflicts, economic and employment data, and expectations of Federal Reserve interest rate cuts."

However, looking at a longer time frame, only the internal holding structure (long and short positions) and institutional allocation (capital inflow) are the two main factors affecting the cyclical operation and phase fluctuations of BTC.

From this perspective, since November last year, BTC has entered the range box of $90,000 to $110,000, experiencing an 8-month-long fluctuation, which is essentially a high-level fluctuation washout after the cessation of interest rate cuts in a high interest rate environment. Historical long positions are being sold off, while new institutions continue to accumulate.

The timing of when BTC prices will rise again depends on forward trading and the price expectations of long positions under the expectation of interest rate cuts.

Macroeconomics: Geopolitical conflicts disrupt, but do not change economic and employment trends

In June, the US stock market and BTC trading paradigm revolved around various factors such as "high interest rate pressure and the probability of interest rate cuts, economic and employment data, tariff uncertainties, and geopolitical conflicts."

After Bitcoin (BTC) led the rebound and reached a historical high of $112,000 in May, increased selling pressure emerged after the market opened in June, pushing BTC down again, and on June 5, it re-validated the support at $100,000. In addition to the selling pressure, the panic triggered by the escalation of the "reciprocal tariff war" between the U.S. and China was also an important factor for the price correction, manifested as a shift in BTC Spot ETF channel funds from significant inflow in May to a phase of outflow. On June 9, the U.S. and China resumed negotiations in London, and by late June, the leaders of both sides signed documents again, gradually diminishing the impact of the renewed "reciprocal tariff war" on the market.

In mid-month, the Middle East conflict reignited, and geopolitical tensions became the main factors for the high volatility of BTC this month.

On June 13, Israel launched airstrikes against Iran, resulting in the deaths of more than a dozen Iranian officials and nuclear scientists. The conflict arose because Israel believed Iran was nearing the capability to build a nuclear bomb. From June 21 to 22, U.S. B2 bombers directly intervened in the conflict, bombing three Iranian nuclear facilities. The market feared that the Israel-Iran conflict could escalate into a regional war, thereby affecting shipping in the Strait of Hormuz and driving up global oil prices. As panic escalated, on June 22, BTC fell to a low of $98,225.01, marking the lowest point of the month. However, following a relatively restrained response from various parties and statements from the U.S. government that "the actions have been completed," the market quickly rebounded above $105,000. By the 25th, U.S. President Trump announced that Israel and Iran had agreed to a "comprehensive and complete ceasefire," with both sides expressing acceptance of the ceasefire. The market's concerns about the impact of the conflict escalation on oil prices quickly dissipated, and BTC began to oscillate within a narrow range around $107,000.

The economic and employment data from the United States released this month are not far from market pricing.

In early June, the May CPI year-on-year rate was announced at 2.4%, and the core CPI year-on-year rate at 2.8%, with a month-on-month increase of only 0.1%, slightly lower than expectations. The May PCE year-on-year rate announced later in the month was 2.7%, slightly above the expected 2.6%. The University of Michigan Consumer Confidence Index was at 60.7, slightly higher than the expected 60.5. In terms of employment data, the unemployment rate slightly increased, and wage growth decreased to around 3.9%. In the second half of June, initial jobless claims fell to 236,000, but the number of continuing claims rose to 1.974 million, a new high since November 2021, indicating that re-employment difficulties are increasing. Consumption and employment data show that the economy is cooling down, but not to the point of recession; inflation has slightly rebounded, but the scale is very small.

This data drives changes in the CME FedWatch dashboard: there is over a 90% probability that the Federal Reserve will cut rates at least twice this year, by at least 50 basis points.

Regarding the Federal Reserve, Powell will attend hearings in the Senate and House later this month. Powell has maintained restraint and independence, holding the view that the job market remains strong, inflation continues to decline, but the effects of the tariff war have not yet fully manifested, and there is still potential for an increase. He emphasized that the Federal Reserve's responsibilities are to stabilize prices and achieve full employment, rather than respond to political pressure.

However, in the face of Trump's urgent call for interest rate cuts, differing voices have begun to emerge within the Federal Reserve. Vice Chair Bowman and Council Member Waller both stated that the impact of tariffs is minimal and that inflation has declined for three consecutive months, suggesting that interest rates should be cut soon. The market interprets this "soon" as July.

The change in the Federal Reserve's tone has strengthened the expectations for a rate cut in September (and implied a slight possibility of a rate cut in July). Together with the anticipation of the passage of the "Big and Beautiful Act" (which includes tax reduction provisions), this has led to a rebound in the U.S. stock market and BTC after the 23rd. By June 27, both the NASDAQ and the S&P 500 index reached new historical highs.

By the end of the month, the sharply rising crude oil prices during the conflict between Israel and Iran have significantly fallen back to around $66, and gold has also dropped back to the $3300 per ounce level, indicating that the risk aversion sentiment has greatly weakened.

In the May report, we pointed out that "it is expected that the US stock market and BTC will likely remain volatile in the next two months, until the interest rate cut expectations in August may drive the US stock market and BTC to reach new historical highs. This judgment includes an optimistic ending to the 'reciprocal tariff war' and the relatively 'mild' recession of the US economy."

In June, the various data released by the United States and the performance of the U.S. stock market "operated" within this judgment framework, but the U.S. stock market reached new highs ahead of expectations, slightly stronger than predicted. The reason lies in the overall shift in tone from the Federal Reserve, and the end of the Israel-Palestine conflict due to U.S. intervention has strengthened the low position of the U.S. capital markets, along with expectations for the passage of the "Big and Beautiful Act." For the future market, in the absence of geopolitical conflicts disrupting the situation and sudden downturns in economic and employment data, the market may strengthen earlier than expected. With the U.S. stock market continuously reaching new highs, BTC could potentially enter the next phase as early as the first month of Q3.

Cryptocurrency Assets: Consolidation and Accumulation Have Lasted for 8 Months

In May, BTC opened at $104,645.87 and closed at $107,173.21, with an increase of $2,527.34 or 2.42% for the month, a volatility of 11.87%, and trading volume decreased for three consecutive months.

According to the technical indicators and price range we focus on, BTC has been running within the Trump bottom ($90,000~$110,000) throughout the month. After 8 months of fluctuation, it has converged the fluctuation range to $100,000~$110,000. For most of the month, it has been operating above the "first upward trend line of the bull market," only briefly falling below this support around June 22, when the "U.S. bombed Iranian nuclear facilities," indicating a relatively strong confidence in buying power.

Since last November, after BTC entered the range of 90,000 to 110,000, it has been in a consolidation phase for 8 months now, with trading volume steadily declining. This range reflects factors such as Trump's favorable attitude towards BTC and crypto assets upon taking office, the positive impact of stablecoin legislation, and various publicly listed companies allocating BTC. We believe that this 8-month consolidation can be understood as a major absorption of BTC at historical highs, during which both short-term and long-term holders have liquidated their positions, while institutions have acquired and allocated BTC through direct purchases.

Therefore, this range has become solid enough, with more chips being transferred into the hands of long-term funds, and BTC is gradually preparing for the next step upward. Due to sufficient washout and a significant amount of chips entering institutional hands, the next rally may be completed rapidly in the short term. We originally expected this breakthrough to occur in August or September, but if expectations for interest rate cuts drive forward-looking buying and accelerate structural allocation, it is possible that the rally could be brought forward to July.

Funds: Over 10 Billion USD Flowed into the Market

This month, the total net inflow of funds into stablecoins and BTC Spot ETF channels reached $10.469 billion, with stablecoins accounting for $4.670 billion and BTC Spot ETF channels $4.622 billion. Compared to last month's inflow of $11.415 billion, there has been a slight shrinkage, but it remains relatively ample.

Refined to daily statistics, we can observe that the inflow of funds into the BTC Spot ETF channel weakened at the beginning of the month, with a period of outflow, and on June 19 and 20, there was also a zero inflow performance. These correspond to the macro events of the renewed trade conflict between the U.S. and China and the suspected U.S. involvement in the Israel-Palestine conflict.

During the remaining time, the BTC Spot ETF has maintained a relatively strong inflow, which is also a material support for the rise in BTC prices this month, despite experiencing fluctuations and long-term holdings reduction.

In addition, the ETH Spot ETF channel saw inflows of $1.178 billion in June, which is a significant increase compared to the previous month. Behind this is the support for stablecoins in the U.S. which is expected to experience major growth, as well as the SEC meeting that officially relaxed the obligation review for DeFi protocol founders. Whether it is stablecoins or DeFi, the biggest beneficiary public chain is undoubtedly Ethereum.

Since last year, the BTC Spot ETF channel funds and direct institutional allocations have become the primary force determining the upward pricing of BTC.

According to incomplete statistics, there are now over 140 public companies worldwide that have initiated BTC and other cryptocurrency asset allocations. In addition to Strategy and Metaplanet, a large number of new companies are recently joining this allocation trend, such as GameStop, Twenty One Capital, and Trump Media & Technology Group Corp. Trump Media, associated with U.S. President Trump, has completed the fundraising of $2.5 billion for its allocation.

As the largest buyer in this round of the bull market, institutional allocation has become one of the decisive forces determining the height of BTC prices in this round of the bull market.

Chip structure: Long-term hands may initiate the third round of selling

Another decisive force determining the height of the current BTC price is the scale of long-hand sell-offs.

According to the historical patterns of BTC over the past decade, during the development of a bull market, funds flood in, and long holders will gradually sell off the chips they have accumulated during the price decline to lock in profits. In the previous bull markets of past cycles, such sell-offs often occurred twice, but this bull market is different.

In this round of the bull market, the second large-scale sell-off by long-term holders began in October last year and ended in January, lasting only 4 months, which is far lower than in the past. EMC Labs believes that the underlying reason is the market turmoil caused by the "tariff war" which affected the purchasing enthusiasm of the main buyers (institutional clients) in this round of the bull market, leading to a decline in prices.

As a whole, long-term holders rarely sell their holdings during a trend decline. In a trend decline, long-term holders often choose to accumulate more holdings. Therefore, from February to June, long-term holders not only stopped selling but also accumulated over 740,000 BTC. While adhering to their own discipline, they objectively played a stabilizing role, reducing the speed and extent of BTC's decline.

Once the panic caused by the chaotic equal tariff war dissipates, the US stock market stabilizes, the buying power for the BTC Spot ETF channel returns, and BTC can return to the $105,000 level.

From a daily statistical perspective, the long position reached its peak on June 22. Subsequently, as the BTC price rebounded rapidly, long positions began to slightly reduce their holdings. In the coming months, if the price breaks through the previous high and climbs to a new level, long positions will face a third round of large-scale reductions. The scale and intensity of this sell-off will jointly determine the length of this bull market and the height of the BTC price, along with institutional allocations.

Conclusion

The eMerge Engine shows that the BTC Metric is 0.625, and BTC is in a bullish uptrend.

This round of the BTC bull market shows many different characteristics compared to the past, such as a significant lack of confidence in a high interest rate environment, the first time institutions taking the lead while retail investors are marginalized, and the BTC bull market failing to drive a comprehensive crypto bull market, among others.

As BTC gradually becomes a mainstream asset, many past experiences and understandings will become invalid, while a few rules may continue for a longer time. The only constant might be the cyclical rate.

In the March report, we pointed out that "The movement of the opposite is the movement of the Dao. If the tariff policy does not worsen too much, the signs of a recession in the US economy are present but not severe, and if the Fed cuts interest rates again in June, then BTC, which has already experienced significant valuation drops, is likely to see a turnaround in Q2."

As of the end of June, we have seen both the US stock market and BTC achieve a reversal, reaching or briefly reaching historical highs.

We are very optimistic about the market in the third quarter. Fluctuations are inevitable, but BTC will reach a new all-time high, achieving the fourth wave of this bull market.