Huobi Growth Academy | Macro Research Report on the Crypto Market: Policy Signals After Powell's Speech and Outlook for the Fourth Quarter

I. Current Macroeconomic Overview

Powell recently emphasized in his speech that the Federal Reserve's stance remains tight even after the interest rate cut, believing that the current interest rate level "is still slightly above neutral." This means that even with the easing measures taken, the overall financial environment still has the effect of suppressing inflation. He specifically mentioned that there is "room for further adjustments" in policy, but there will be no preset path; instead, actions will be taken flexibly based on future employment and inflation data. This statement reinforced the market's perception of "gradual easing," weakened expectations for excessive easing, and left room for maneuvering in the fourth quarter market. Previously, the Federal Reserve decided to cut interest rates by 25 basis points at the September meeting, marking a significant shift in monetary policy since the beginning of this tightening cycle. The market had already formed high expectations for this move, but Chairman Powell's subsequent remarks conveyed a more complex message than simply a rate cut. He repeatedly emphasized the existence of "two-way risks": on one hand, if signs of weakness in the labor market continue to deepen, the Federal Reserve will need to further release easing to prevent the unemployment rate from rising too quickly and undermining the long-term growth potential of the economy; on the other hand, if inflation shows signs of recurring after approaching the target, monetary authorities also need to remain vigilant to avoid excessive easing leading to a resurgence in price levels. Powell acknowledged that even after the rate cut, the Federal Reserve is still "in a favorable position," which means policymakers want to retain flexibility and are unwilling to let the market bet prematurely on a rapid easing path.

The background for the rate cut lies in the multiple pressures faced by the U.S. economy over the past year. On one hand, consumption and employment performance have gradually slowed, especially the growth rate of new jobs in the labor market, which is significantly lower than the high levels of the previous two years, reflecting a decline in companies' willingness to hire. On the other hand, although the inflation rate has significantly retreated from the peak in 2022, core inflation indicators still show resilience. The Personal Consumption Expenditures (PCE) price index in August rose by 2.7% year-on-year, up from 2.3% in July, indicating that the sticky pressures driven by the service sector and wages have not completely dissipated. In this context, the Federal Reserve's rate cut is not a traditional "market rescue," but rather a strategic operation: by slightly releasing easing signals, it avoids excessive tightening of financial conditions that could create a secondary shock to the labor market, while reminding the market that the policy path still depends on subsequent data rather than a definitive shift. Powell's emphasis on "two-way risks" is a concentrated reflection of the current macroeconomic environment's uncertainties. The so-called "two-way risks" mean that in monetary policy operations, one must prevent rising unemployment due to economic downturns while also preventing recurring inflation from undermining price stability. This framework requires decision-makers to maintain a high dependence on data, making the policy path more gradual and flexible. In other words, the Federal Reserve's goal is to maintain a "defensive balance": preventing the economy from falling into recession too quickly while also avoiding any wavering of the inflation target. This line of thinking differs from the unilateral tendency of "forward guidance" policies in the past few years after the pandemic, resembling a more pragmatic approach that emphasizes adaptability.

In terms of employment, recent data indeed indicate that the labor market is gradually cooling. Job growth has been below the long-term trend for several months, with indicators of job vacancies and labor participation rates both declining, suggesting that the supply-demand relationship in the labor market is returning from a previous "overheated" state to a near-equilibrium or even slightly weak state. Powell acknowledged in his speech that the slowdown in job growth means that there may be upward pressure on the unemployment rate in the future, and if this trend worsens, monetary policy must provide greater support. Meanwhile, wage growth remains at relatively high levels, which adds some inertia to service sector inflation. The policy layer is thus in a delicate position: it must prevent excessive contraction on the demand side while also controlling the inflation risks driven by costs. This situation explains Powell's emphasis on a "slight easing tendency" rather than a significant shift. From an inflation perspective, the overall price level in the U.S. has significantly retreated over the past two years, but core service inflation remains strong, especially in areas such as housing, healthcare, and education, which show lagging effects. Powell acknowledged that there is uncertainty in the improvement of the inflation path, and short-term data fluctuations cannot be seen as turning points in long-term trends. This means that even after the rate cut, the Federal Reserve will remain cautious in the coming months and will not immediately enter a rapid rate-cutting cycle, but will instead rely on data to gradually release space. In other words, the rate cut is more of an "insurance-style" adjustment rather than a strong pessimistic statement about the economy. In terms of growth, the U.S. economy has shown some resilience this year. The GDP growth rate in the second quarter remained around 2.5%, although lower than the highs of the past two years, it is still above the potential growth level. Consumption expenditure remains the main driver, with the household sector benefiting from income growth and some release of savings, maintaining a certain purchasing power. However, corporate investment is slowing, and the manufacturing purchasing managers' index is hovering around the line of expansion and contraction, indicating that the impacts of weak global demand and tightening financial conditions are gradually becoming evident. On the fiscal side, the U.S. federal government's deficit remains high, and the debt-to-GDP ratio continues to rise, with limited fiscal space, meaning more reliance on monetary policy to maintain economic stability in the future. Against this backdrop, Powell's cautious tone in his speech becomes particularly important: the Federal Reserve needs to avoid the overlap of its policies with fiscal vulnerabilities, which could trigger market instability.

From a global macro perspective, the U.S. rate cut is not an isolated event but is closely related to global economic trends. European economies have been troubled by energy shocks and declining industrial competitiveness in recent years, with the Eurozone's growth remaining weak. Although inflation is gradually retreating, it still hovers at high levels, and the European Central Bank's policies also face dilemmas. In China, economic growth is maintaining a moderate recovery under policy stimulus, but the recovery of consumption and investment is still uneven, and the real estate market remains under pressure. Emerging markets are under pressure in an environment of a strong dollar and high interest rates, with increased risks of capital outflows and currency depreciation. Therefore, any adjustments by the Federal Reserve will not only impact the U.S. domestic economy but will also exert strong spillover effects on external economies through the dollar and global financial conditions.

The trends of the dollar and U.S. Treasury yields have been particularly crucial recently. After the September rate cut, the yield on the 10-year U.S. Treasury bond briefly fell to around 4%, but after the market reabsorbed the policy signals, it hovered around 4.1%, indicating that long-term rates are still constrained by both supply-demand dynamics and inflation expectations. The dollar index strengthened in the new week, reflecting that global capital still favors dollar assets as a safe-haven allocation. This combination has a chain effect on global financial markets: on one hand, the limited decline in U.S. Treasury yields means that financing conditions remain tight; on the other hand, the strong dollar puts pressure on emerging markets, increasing external uncertainties. For the cryptocurrency market, this macro environment means that it is difficult to gain unilateral liquidity support in the short term, relying more on adjustments in internal leverage and capital flows.

The linkage between macro and financial conditions is the core to interpreting the current situation. The financial conditions index shows that although the Federal Reserve has begun to cut rates, interest rates remain at relatively high levels, and the relief of overall conditions is limited by credit spreads and stock market valuations. The marginal improvement in liquidity is more achieved through the enhancement of market sentiment and risk appetite rather than a substantial decrease in costs. This pattern indicates a certain misalignment between macro policies and financial markets: policies release easing signals, but the market may not be able to immediately translate this into an actual easing financing environment. Coupled with the long-term existence of fiscal deficits and geopolitical risks, the financial market remains cautious in interpreting Federal Reserve policies. This is also the reason why Powell's speech emphasized "flexibility," as he needs to manage both inflation expectations and market expectations simultaneously to avoid volatility caused by unilateral bets.

Overall, the policy logic conveyed by Powell's speech can be summarized in three points: first, the rate cut is a forward-looking response to the weakness in the labor market and the risks of economic downturn, but the scale is limited, aimed at providing "insurance" rather than comprehensive easing; second, achieving the inflation target will take time, and the Federal Reserve is unwilling to prematurely abandon tightening results due to short-term data fluctuations; third, global financial conditions are complex and variable, and the trends of the dollar and U.S. Treasuries determine whether policy effects can be transmitted to the market. On the macroeconomic level, the U.S. still shows relative resilience, but slowing growth, fiscal pressures, and external environmental uncertainties require policymakers to maintain balance. The divergence among major global economies further increases spillover effects, making every move by the Federal Reserve resonate in global markets. In the next one to two quarters, the interplay between macro and financial conditions will become a key external variable affecting the trends in the cryptocurrency market.

II. Cryptocurrency Market and Macroeconomic Outlook

In the past week, the most prominent feature of the cryptocurrency market has been the concentrated liquidation of leverage and the rapid release of risk. In the previous weeks, driven by optimistic sentiment regarding the Federal Reserve's imminent rate cut, the prices of Bitcoin and Ethereum continued to rise, and the derivatives market saw a rapid accumulation of open interest (OI), with high-leverage funds flooding in, leading to obvious signs of market exuberance. However, Powell's latest speech emphasized that the monetary policy path has "two-way risks," meaning that the future pace of rate cuts is not unilaterally determined but may be constrained by both recurring inflation and economic downturns. This statement quickly dampened the overly optimistic risk appetite, leading to a sharp reversal in market sentiment. As a result, the total liquidation scale across the market exceeded $1 billion in a single day, especially as ETH leveraged positions faced concentrated liquidations at key support levels, triggering a chain reaction. It is worth noting that this round of liquidation was not solely a long squeeze; some short positions were also passively exited during the market rebound, highlighting the double-edged sword effect of high leverage in the derivatives market. While the liquidation of leverage exacerbated short-term volatility, it also contributes to a healthy reset of market risks in the medium to long term, accumulating momentum for subsequent trends. Historical experience shows that each liquidation wave often precedes a phase bottom or top, and this one may also lay the groundwork for the next round of market movements. According to Coinglass data, on September 22, a total of 406,200 people in the cryptocurrency market were liquidated, with a total liquidation amount reaching $1.678 billion. Among them, long liquidations amounted to $1.595 billion, while short liquidations were $83.435 million.

In the spot market, Bitcoin briefly fell below key technical levels after the liquidation wave but did not enter a free-fall. On-chain data shows that whale addresses showed significant accumulation signs around the $115,000 level, with long-term funds gradually buying in, forming strong support below and helping the market stabilize quickly. In contrast, Ethereum showed weaker performance, partly because the derivatives market had a higher leverage ratio for ETH, amplifying volatility; on the other hand, the staking ecosystem after the Shanghai upgrade has entered a balancing phase, making ETH more sensitive to macro disturbances. Other mainstream tokens like SOL and TON have maintained investor interest, but their short-term trends still follow the rhythm of BTC and ETH and have not yet developed independent market movements. Overall, the core logic of the market this week is that the reversal of macro expectations led to leverage liquidation, followed by long-term funds providing support at lower levels, with the market entering a phase of consolidation and bottoming.

The microstructure of the derivatives market further reveals changes in funding sentiment. Before the liquidation wave, funding rates had significantly turned positive, indicating that bullish leverage expectations had been pushed to high levels; however, after the liquidation, funding rates quickly fell back and even turned negative at times, showing that overly optimistic sentiment was suppressed. In terms of basis, the premium of futures relative to spot narrowed significantly after the event, even turning into a discount at one point, indicating that funds are becoming more cautious and reflecting an increased aversion to medium- to long-term risks. In the options market, skew indicators show a significant increase in demand for put options, with investors increasing their allocation for downside protection, reflecting heightened risk-averse sentiment. At the same time, with large-scale options expirations, the Gamma effect has intensified short-term volatility, forcing market makers to dynamically hedge, driving rapid fluctuations in spot and futures prices. This series of feedback mechanisms in the derivatives market has amplified price volatility but also accelerated the process of leverage liquidation, creating conditions for sentiment recovery.

ETF fund flows and whale movements have become another major observation point in the market this week. Daily fund inflows into Bitcoin spot ETFs have significantly decreased, with some trading days even showing slight net outflows, indicating that institutional funds are choosing to wait and see amid increasing macro uncertainties. However, the cumulative holdings have not significantly decreased, and long-term fund allocations remain stable. On-chain monitoring shows that some large addresses have continued to accumulate in batches during the market's sharp decline, a pattern that is very similar to behaviors observed at the end of 2023 to 2024. The coordinated actions of institutional funds and whales often serve as a barometer for mid-term trends, so their current steadfastness and accumulation at low levels further reinforce the logic of market consolidation and bottoming. On the structural level, the spot market remains the foundation for pricing, while the leverage fluctuations of futures and options amplify short-term price movements. This week, leverage positions significantly decreased after the liquidation, re-empowering the decisive role of spot in price determination. This change indicates that the market is returning to a healthier structural state. In the coming weeks, the market may be in a dynamic balance of "leverage liquidation - spot support - institutional observation," making it difficult to see unilateral trends in the short term, but accumulating strength for mid-term movements.

The macro environment is the key to influencing medium- to long-term trends. Expectations of a Federal Reserve rate cut have been an important logic driving the rise of crypto assets, as low interest rates mean lower funding costs and a rebound in liquidity, which is favorable for high-risk assets. However, Powell's speech clearly reminded the market that rate cuts are not a one-way process, and monetary policy may be adjusted at any time due to inflation or growth paths. This signal caused the dollar index to stabilize after the speech, and long-term rates did not significantly decline, thereby weakening the market's overly optimistic expectations for liquidity easing. In this situation, the funding flow logic in the cryptocurrency market has encountered disturbances, showing significant short-term pressure. From historical experience, the cryptocurrency market is far more sensitive to dollar liquidity and interest rate environments than traditional risk assets, as it lacks a stable cash flow and valuation anchor, relying almost entirely on external capital flows. Therefore, fluctuations in rate cut expectations will become the dominant variable in future market movements. Inflation factors also have a dual impact on the cryptocurrency market. If inflation recedes, expectations for interest rate declines will increase, leading to a rise in risk appetite, which is beneficial for the valuation expansion of crypto assets; if inflation recurs, investors will worry about the prolonged high interest rate environment, leading to a decrease in risk appetite and a return of funds to safe-haven assets like the dollar and bonds. Currently, although U.S. inflation has generally retreated, sticky inflation related to services and housing still exists, combined with global energy price fluctuations, making the market lack confidence in the notion of "inflation being completely under control." This uncertainty makes it difficult for the cryptocurrency market to form a lasting unilateral trend, with investor sentiment oscillating repeatedly. More fundamentally, the cryptocurrency market's essential characteristic is high beta and sensitivity to liquidity. Unlike traditional stock markets, the cryptocurrency market does not have a cash flow discounting valuation system; its prices are primarily determined by capital flows. The net inflow scale of ETFs, the buying and selling behavior of whales, and changes in leverage positions in derivatives—these funding-level indicators often explain market movements better than narratives or fundamentals. In the current context, the uncertainty of rate cut expectations and recurring inflation further amplifies the market's reliance on capital flows. As long as there is no substantial improvement in dollar liquidity, it will be difficult for the cryptocurrency market to develop independent market movements. However, this liquidity dependency also means that once the macro environment shows positive turning points, funds may flow back at a faster pace, and the cryptocurrency market will also welcome a new round of rapid upward cycles. For this reason, the market appears weak in the short term but still possesses explosive potential in the long term.

In summary, the overall logic of the cryptocurrency market this week can be summarized in three levels. On the short-term level, leverage liquidation and the reversal of policy expectations have brought about intense volatility, but spot funds and whale accumulation have prevented systemic declines. On the mid-term level, the slowdown in ETF inflows and macro uncertainties have put funds in a wait-and-see state, leading the market into a phase of consolidation and bottoming. On the long-term level, the cryptocurrency market still deeply relies on global liquidity and interest rate environments; once the rate cut cycle becomes clear or inflation pressures ease, funds are expected to flow back quickly, driving a new bull market. In the coming weeks, the key for the market lies in three variables: first, the actual direction of the Federal Reserve's policy path and dollar liquidity; second, the rhythm of re-inflows from institutional funds such as ETFs; third, whether on-chain whales and long-term funds continue to accumulate. In this process, investors need to be wary of the risks brought by short-term leverage volatility while also paying attention to the intersection of macro and capital flows, as this is the core force determining the trends in the cryptocurrency market.

III. Opportunities and Challenges

As we enter the fourth quarter, the global macro and cryptocurrency market landscape will continue to intertwine and evolve. The Federal Reserve has taken the first step in cutting rates, but the policy path remains fraught with uncertainty, with subtle changes in inflation and employment data influencing the tightening or loosening of monetary conditions. Meanwhile, the strong dollar and high U.S. Treasury yields keep the global risk asset environment cautious. For the cryptocurrency market, this means there are both new opportunities and structural challenges. Investors need to position themselves along both macro and micro lines, capturing positive factors from capital flows and application expansions while hedging against potential external volatility and market vulnerabilities.

In terms of opportunities, first, the logic of ETF expansion continues. Over the past year, Bitcoin and Ethereum spot ETFs have been approved in the U.S. and European markets, gradually becoming the core channel for institutional investors to enter the cryptocurrency market. Although short-term capital flows experience fluctuations, the role of ETFs as a medium- to long-term capital conduit is gradually becoming apparent. Once the Federal Reserve's policy path becomes clearer and risk aversion diminishes, the continuous net inflows into ETFs will provide solid support for BTC and ETH. Historical experience shows that sustained inflows of ETF funds can not only improve market liquidity but also reshape the investor structure, reducing the market's reliance on leveraged funds, thereby driving the market towards a healthier mid-term trend. Second, institutional entry remains a long-term engine for industry development. As the policy and regulatory environment gradually clarifies, more traditional financial institutions are exploring allocations in crypto assets and blockchain-related products. From asset management companies to insurance funds, and from corporate treasuries to family offices, the scope of institutional demand is continuously expanding. Especially against the backdrop of high valuations in U.S. stocks and fluctuations in bond yields, crypto assets are increasingly seen as an important part of portfolio diversification. If the macro environment stabilizes in the fourth quarter, the accelerated entry of institutional funds may become an unexpected boon for the market. Third, the deepening of blockchain applications provides fundamental support for the market. Over the past two years, decentralized finance (DeFi), on-chain derivatives, stablecoins, and the tokenization of real-world assets (RWA) have rapidly developed, enhancing on-chain capital efficiency and gradually intersecting with traditional financial markets. In particular, the growth of RWA has made blockchain an important platform for liquidity and financial innovation. As the Federal Reserve's rate cut opens up expectations for global liquidity easing, funds may seek arbitrage opportunities between traditional markets and on-chain markets, injecting vitality into the crypto ecosystem. With technological upgrades and new applications landing in the fourth quarter, the market will have more narratives to support price rebounds.

However, challenges cannot be overlooked. First, macro uncertainty persists. Although the Federal Reserve has initiated rate cuts, the future path remains uncertain. If inflation shows signs of recurring before the end of the year or if the labor market deteriorates again, the Federal Reserve may adjust its pace, and the fluctuations of the dollar and U.S. Treasuries will become ongoing sources of market risk. Global geopolitical uncertainties, fiscal deficit pressures, and uneven liquidity distribution may also exacerbate market volatility in the short term. In this macro environment, the cryptocurrency market, as a high-beta asset, often becomes the primary casualty during capital adjustments. Second, regulatory risks remain a shadow hanging over the industry. The U.S. SEC maintains a high-pressure stance on token issuance, stablecoin compliance, and exchange regulation beyond ETFs. Although the European MiCA regulatory framework provides a clearer path, compliance costs may rise for some projects, squeezing profit margins. In emerging markets, capital flows may also experience volatility in the face of ambiguous regulations. This means that the cryptocurrency market needs to find a balance between expansion and compliance; otherwise, short-term benefits may be offset by policy disturbances. Furthermore, whale behavior and the market structure's fragility will continue to be sources of short-term market disturbances. Recent large-scale cash-outs by ETH whales are a typical example. Due to limited market depth, the capital operations of a single entity can significantly influence prices, creating "emotional resonance." When the market structure still heavily relies on leverage and derivatives, whale behavior can amplify volatility, undermining investor confidence. Only when ETFs and institutional funds gradually dominate can the market begin to detach from this dependency. Therefore, the cryptocurrency market in the fourth quarter is characterized by a "coexistence of opportunities and challenges." On one hand, ETFs and institutional funds provide long-term support, and the deepening of blockchain applications brings structural growth momentum; on the other hand, macro uncertainties, regulatory uncertainties, whale operations, and leverage dependencies may trigger fluctuations in the short term. Investors need to switch strategies across different time scales: focusing on risk control and liquidity observation in the short term, while paying attention to the value reassessment brought by improvements in funding structure and application expansion in the medium to long term.

IV. Conclusion

In summary, Powell's speech and the Federal Reserve's rate cut represent a new phase in macro policy: the policy is no longer unilateral but has entered a gradual balance under the "two-way risk" framework. The U.S. economy still shows resilience, but fiscal pressures and sticky inflation prevent the market from fully relaxing. On a global level, the trends of the dollar and U.S. Treasuries determine the funding environment for risk assets, while the cryptocurrency market, as a high-volatility asset, will still move with the wind under this macro backdrop in the short term. The liquidation events of the past week reveal the dual risks of leverage dependency and market structural fragility, but they also release some pressure from the market, clearing excessive leverage and creating conditions for healthier upward movements in the future.

The outlook for the fourth quarter can be summarized in two keywords: volatility and turning point. Volatility arises from macro uncertainties and adjustments in internal funding structures, while the turning point lies in the continuity of ETF fund flows, the gradual entry of institutional funds, and the long-term value brought by blockchain applications. Historical data shows that October is often a strong month for the cryptocurrency market; if the macro environment does not present significant headwinds, the market could very well restart a rebound after the liquidation. What investors need to do is not to predict every short-term fluctuation but to establish a flexible and robust framework: remain vigilant in the interplay of macro and crypto, and decisively act at the nodes of liquidity and structural improvement. The coexistence of opportunities and challenges is precisely the norm of the cryptocurrency market and the source of long-term investment value.