Fed Policy Changes and the Crypto Market: 2024-2025 Trend Analysis

The Bitcoin halving cycle is usually regarded as an important time node in the crypto assets market. According to this cycle, the Fed's interest rate cut cycle should have begun in the fourth quarter of 2023.

However, at that time, the government took a series of measures, including relaxing employment restrictions for illegal immigrants and expanding the size of government employees. These initiatives affected non-farm employment data to some extent, delaying the interest rate cut decision. At the same time, in order to support the government's economic stimulus policy, a large amount of U.S. debt was issued, leading to a significant decline in the 10-year U.S. Treasury yield. This situation continued into the first quarter of 2024, driving a seasonal bull market.

Entering the second quarter of 2024, the global economic situation has changed. Some non-US countries are facing systemic risks, such as issues in the real estate market in East Asia and fluctuations in the Japanese bond market, which have increased the safe-haven demand from global investors. The US dollar, US Treasuries, and gold have become the preferred safe-haven assets. Additionally, since the second quarter is traditionally a period of weak performance for risk assets, the crypto assets market has subsequently entered a downturn.

In the third quarter of 2024, in order to boost the economy and election prospects, the Fed began to cut interest rates. However, an abnormal phenomenon occurred in the market: although nominal interest rates fell, the yield on 10-year US Treasury bonds rose, approaching historical highs. Therefore, the market conditions in the fourth quarter of 2024 were not driven by external funds, but were influenced by political factors and seasonal factors.

By the first quarter of 2025, the market's focus had shifted from economic indicators such as employment data and inflation rates to the conflicts between various government departments. The implications of this conflict are far-reaching, and coupled with significant breakthroughs in the field of artificial intelligence challenging the U.S. technological hegemony, it led to a massive sell-off in the U.S. Treasury market. Although this drop in actual interest rates was triggered by panic, it did not bring about the anticipated spring rally; instead, it resulted in a significant outflow of funds.

Currently, the United States is facing the most significant period of transformation in a century. The outcome of this transformation will have far-reaching effects on America's future global standing, potentially extending its status as a world power or bringing about unforeseen consequences.

Faced with such significant systemic risks, along with the uncertainty of the U.S. crypto assets regulatory framework in July, major participants in the crypto market seem to have adopted a proactive strategy, prioritizing the assurance of their own liquidity.

Recent actions by multiple crypto assets trading platforms and project parties, such as suddenly changing strategies to promote certain coins, or launching new projects amid controversy, may reflect such strategic considerations. At the same time, many highly regarded primary market projects are also conducting initial token offerings at lower prices, which may be aimed at safeguarding their own interests in an uncertain market environment.

In such a turbulent market environment, a conservative strategy may be wiser, and investors should proceed with caution, prioritizing the protection of their principal.