Matrixport Market Observation: The Federal Reserve's Rate Cut Cycle Begins, BTC and ETH Experience a Periodic Correction

Recent BTC and ETH prices have shown a significant pullback. BTC has fallen from its yearly high of $124,000 to around $112,000, a decline of nearly 10%; ETH has retreated from a high of nearly $4,900 to the $4,100--$4,200 range. This round of decline follows a substantial rise, more characteristic of a phase adjustment in a bull market, and there are currently no signs of a trend reversal.

Liquidity tightening combined with institutional profit-taking has become the main driver of the decline

Overall market liquidity remains tight. Although the Federal Reserve has entered a rate-cutting cycle, quantitative tightening has not fully ended, and the growth of stablecoin market capitalization is limited, with insufficient new funds entering the market. At the end of the quarter, some institutions and large holders chose to rebalance their portfolios or take profits, increasing short-term selling pressure. For example, a fund address redeemed 16,800 ETH in one go just before the decline, indicating that some leveraged funds reduced their positions in advance. Such rebalancing behavior is common in both traditional and crypto markets.

The Federal Reserve enters a rate-cutting cycle, with expectations for medium- to long-term liquidity improvement still in place

At the September FOMC meeting, the Federal Reserve announced its first rate cut since 2019, lowering the federal funds rate to a range of 4.00%--4.25%. Chairman Powell stated that the trend of declining inflation is becoming clearer and that the labor market supply and demand are balancing. The market expects there may still be 50 basis points of rate cuts within the year. The expectation of rate cuts suggests that the medium- to long-term liquidity environment may improve, providing support for risk assets. However, short-term market performance indicates that the easing policy has been partially priced in, leading to a brief "buy the expectation, sell the fact" trend.

Rising U.S. Treasury yields and a rebound in the dollar index put short-term risk appetite under pressure

Recently, rising U.S. Treasury yields and a rebound in the dollar index have put pressure on risk assets. Additionally, September has historically been a period of tightening liquidity, with BTC's average historical return in this month being negative, and seasonal factors also disturb the market. Technically, BTC and ETH have shown signs of being overbought after a rapid rise, with market sentiment retreating from previous optimism to a neutral level, leading some investors to choose to reduce their positions temporarily.

Derivatives deleveraging amplifies the decline, but there is clear capital support at the market bottom

During the spot price decline, the deleveraging effect in the futures market further exacerbated the downward trend. Data shows that during this round of pullback, several hundred million dollars worth of long positions were passively liquidated across the network. After key technical levels were breached, stop-loss orders were triggered, increasing short-term selling pressure. However, on the other hand, on-chain monitoring indicates that some whales and medium- to long-term investors have increased their BTC holdings at lower levels, suggesting that the market has not experienced large-scale panic selling.

Long-term funds continue to accumulate, providing medium- to long-term support for the market

The total market capitalization of stablecoins remains stable, indicating that off-exchange funds have not significantly flowed in, but fluctuations in exchange balances reflect that some funds have chosen to accumulate during the pullback. The activity of whale addresses has increased, with the number of addresses holding 100--1000 BTC rising, indicating that some investors are positioning themselves during the adjustment phase. Meanwhile, the proportion of BTC that has not moved for over a year is approaching historical highs, suggesting an increase in the proportion of long-term chips in circulation, which typically helps alleviate selling pressure. ETH's on-chain activity remains at a high level, and although the short-term unlocking scale is large, institutional accumulation continues.

Options pricing indicates short-term volatility, while mid-term direction remains unclear

Options market pricing shows that short-term volatility has decreased to relatively low levels, with the market expecting a sideways consolidation in the coming weeks. The short-term options skew structure slightly favors bullish sentiment, but the medium- to long-term skew indicates that investors still have a certain demand for downside protection. The Put/Call ratio is close to balanced, reflecting a rational market sentiment, with investors increasing hedges while maintaining exposure. Overall, the derivatives market is insensitive to short-term volatility but remains cautious about medium- to long-term uncertainties.

Investment advice: Use structured tools to balance risk and return

In summary, the recent pullback in BTC and ETH is primarily driven by tight liquidity, institutional rebalancing, macro uncertainties, and derivatives deleveraging, with no trend reversal in the market. As the Federal Reserve enters a rate-cutting cycle and institutional funds continue to position themselves, the medium- to long-term environment still has some support.

In this context, investors can flexibly use structured products according to their risk tolerance:

Matrixport will continue to provide clients with compliant, transparent, and diversified structured products to assist investors in optimizing their risk-return ratios during volatile cycles.

Author: Daniel Yu, Head of Asset Management (This article represents the author's personal views only)

Disclaimer: The market has risks, and investment should be cautious. This article does not constitute investment advice. Trading in digital assets may involve significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. Matrixport is not responsible for any investment decisions made based on the information provided in this content.