BTC hits a new high, the market awaits interest rate cuts to drive further gains

In May, the price of Bitcoin broke through historical highs, and the three major US stock indices also recorded strong gains. Despite the ongoing uncertainty in the geopolitical situation, funds continue to flow into the cryptocurrency market. The net inflow of Bitcoin spot ETFs exceeded $2.7 billion, institutional holdings are close to high levels, and exchange Bitcoin reserves continue to decline, indicating a strong supply-demand relationship.

In terms of policy, the state-level Bitcoin reserve bills in the United States have made significant progress, and bills related to stablecoins have also passed the Senate vote. The U.S. employment data has shown strong performance, inflation continues to decline, and GDP expectations have begun to be revised upwards. These factors may be the fundamental reasons driving the market strength.

However, the tariff dispute has not been completely resolved, and concerns about the U.S. debt issue remain. Currently, the stock market and Bitcoin prices have reflected relatively optimistic expectations, and in the short term, they may digest the uncertainty with a volatile trend while waiting for the arrival of interest rate cuts in the third quarter.

Macroeconomics: The U.S. Economy May Face a "Mild Recession"

The global geopolitical game is tending to ease, the domestic political situation in the United States is gradually stabilizing, market expectations are returning to rationality, driving a continuous rebound in risk assets, leading to relatively optimistic pricing.

In early May, major economies held the first round of negotiations on trade issues, temporarily easing tensions. Both sides pledged to mutually reduce the previously imposed high tariffs within 90 days and continue discussions on economic and trade relations. On the day the news was announced, the S&P 500 index surged by 3.26%.

In May, the US stock market continued the upward momentum of April. By the end of the month, the Nasdaq Index, S&P 500 Index, and Dow Jones Industrial Average recorded monthly gains of 9.56%, 6.15%, and 3.94%, respectively.

The economic data released in May showed that the GDP of the United States contracted at an annual rate of 0.2% in the first quarter, slightly revised upward from the initial value. Consumer spending and imports weighed on the economic performance at the beginning of the year. However, GDP forecast data showed a rebound. The GDP Now data released by the Atlanta Federal Reserve Bank indicated that the data returned to positive territory since the end of April, reaching 3.8% by the end of May, reflecting the market's optimism about the economic outlook.

Inflation data continues to improve. The PCE index, closely monitored by the Federal Reserve, shows that inflation continues to ease. The annual PCE rate has dropped for three consecutive months to 2.15%, while the core PCE has fallen to 2.52%, a new low since the pandemic, gradually approaching the Federal Reserve's target of 2%.

The job market is performing strongly. In April, non-farm payrolls increased by 177,000, higher than market expectations. As of the week ending May 24, the number of initial unemployment claims was 240,000, slightly higher than the previous week and market expectations. The strong performance of the employment data has alleviated market concerns about an economic recession to some extent.

The Federal Reserve decided to keep interest rates unchanged for the third consecutive month at the May meeting. Despite previously signaling a more dovish stance, the Fed maintained a cautious position after the financial markets stabilized and emphasized that trade disputes could lead to a rebound in inflation.

The market generally expects that the Federal Reserve will not initiate interest rate cuts in the first half of the year. Currently, traders expect the Federal Reserve to cut rates twice this year, in September and December, by 25 basis points each time. This expectation has somewhat limited the space for liquidity to further drive asset prices up.

Based on the existing data, it is judged that the US stock market and Bitcoin may maintain a volatile trend in the next two months. It may not be until around August that expectations for interest rate cuts could drive the US stock market and Bitcoin to new highs. This judgment is based on the assumption that trade disputes are alleviated and the US economy experiences a mild recession.

Considering that the GDP in the first quarter has recorded a slight decline, if the GDP in the second quarter also shows a slight drop, the U.S. economy will meet the definition of a "mild recession." Therefore, starting to cut interest rates in September may be a more cautious expectation.

Crypto Assets: Continuous Inflows Propel Bitcoin to New Heights

In May, the opening price of Bitcoin was $94,182.55, and the closing price was $104,645.87, with an increase of $10,463.33 for the month, a growth rate of 11.11%, and a volatility of 19.79%. The trading volume has declined for two consecutive months.

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

It is worth noting that in the current high interest rate environment, retail buying power has not formed a decisive impact. Since March of last year, the daily new address count for Bitcoin has remained low.

The main driving force behind the recent rise in Bitcoin prices comes from institutional investors. A well-known company has increased its holdings by 133,850 BTC since 2025, bringing its total holdings to 580,250 BTC.

Since the approval of the Bitcoin spot ETF in January 2024, the mainstreaming of crypto assets in the United States has accelerated. In March 2025, the U.S. government will include approximately 200,000 BTC in national reserve assets. Subsequently, several states began to promote state-level Bitcoin reserve bills.

On May 7, New Hampshire became the first state in the United States to officially incorporate cryptocurrency into its strategic reserves, allowing the state treasurer to invest up to 5% of state government funds in cryptocurrency. Related bills in Texas and Arizona have also been passed by the Senate.

In the field of stablecoins, the U.S. Senate has passed a procedural vote for the "GENIUS ACT," paving the way for the final signing of the bill. The Hong Kong Legislative Council has also officially passed the draft regulations for establishing a licensing system for fiat-backed stablecoin issuers.

Several large banks in the United States are exploring collaboration to launch a joint stablecoin, with participants including several well-known financial institutions.

The stablecoin market, with a scale exceeding $240 billion, is about to enter a stage of compliant development. Stablecoins are likely to become the second widely adopted crypto asset after Bitcoin and may also become the first killer application in the Web3 space to break 1 billion users. This lays the foundation for the development of blockchain, especially smart contract platforms.

As the regulatory framework gradually clarifies, Bitcoin and blockchain technology are becoming the technological heights that the United States must occupy. The investment and speculative sentiment triggered by this trend is spreading. In addition to the aforementioned companies, several others, including a media group, are launching accumulation plans for Bitcoin and other crypto assets such as Ethereum and Solana.

The expansion of application scenarios, along with the FOMO sentiment and purchasing power triggered by regulatory breakthroughs, has become the fundamental driving force behind the price increase of BTC and other crypto assets.

Capital Flow: Optimistic Expectations Drive Continued Inflow of Funds

During the decline of the U.S. stock market in March and April, the inflow of funds into Bitcoin spot ETFs temporarily stagnated, causing Bitcoin to adjust more than 30% along with the stock market (the largest drawdown in this cycle). Since April and May, with a strong rebound in U.S. stocks, the buying of Bitcoin spot ETFs has also strongly recovered, with net inflows of $605 million and $2.775 billion respectively, driving Bitcoin to recover all its losses and reach a historical high of $112,000.

The stablecoin market (not all used for cryptocurrency trading) has also seen an expansion of capital inflows, with net inflows of $5.375 billion and $5.567 billion in April and May, respectively, but the changes in capital for Bitcoin spot ETF channels are relatively small.

The pricing power of Bitcoin has shifted from on-exchange trading to the hands of Bitcoin spot ETF channel funds and institutional investors. These types of investors generally show a long-term bullish tendency, mainly due to the continuous breakthrough progress of Bitcoin and crypto assets at the policy level in the United States. This is both the reason why Bitcoin was able to rebound quickly in April and May and be the first to reach a new historical high, as well as the underlying logical support for a long-term optimistic outlook.

However, it is important to note that the US stock market has currently priced in a relatively optimistic outlook regarding the trade dispute and may imply expectations that the US economy will not experience a severe recession. The US stock market is currently struggling to break new highs, and fluctuations are inevitable. Although institutional investors continue to increase their holdings, the Bitcoin spot ETF is difficult to perform independently of the Nasdaq index, so expecting Bitcoin to reach new highs in the short term may be overly optimistic.

Market Structure: Exchange Bitcoin Reserves Continue to Decline

During the decline from March to April, long-term investors in BTC once again started to increase their holdings, which objectively played a balancing role in reducing market selling pressure.

As of the end of May, the holdings of long-term holders reached 14.4199 million BTC, approaching historical highs. Correspondingly, the Bitcoin reserves on centralized exchanges continue to decline, currently remaining at only 2.9882 million BTC, close to the levels seen at the end of November 2020.

In previous market cycles, when liquidity increased significantly, long-term holders choosing to sell often suppressed price increases. However, when prices fell during the cycle, long-term holders would slow down their selling or even shift to accumulation, and this cycle is no exception.

Unlike previous cycles, the "second sell-off" by long-term holders in the past usually marked the end of a bull market, whereas after this round of "second sell-off," the market chose to continue rising. We believe this may be due to the inclusion of institutional investors in the structure of long-term holders, which has altered market trends. Whether this change is sustainable requires further observation.

Summary

Although we are optimistic about the application prospects and long-term trends of Bitcoin, the strong performance of Bitcoin's price in the short term has still exceeded our most optimistic expectations.

The reason lies in the overly optimistic sentiment in the risk asset markets, including U.S. stocks, as well as the investment and speculation frenzy triggered by the widespread adoption of Bitcoin in the United States. We hold a positive stance on the latter, but believe that the market's pricing regarding trade disputes may be overly optimistic and that there may be some twists and turns along the way. In addition, we have lowered our expectations for interest rate cuts by the Federal Reserve.

In the report from March, we expected Bitcoin to initiate a reversal trend in the summer, but the market reacted more than expected, reaching a new high in May. Considering various uncertainties and the delayed liquidity expectations, we believe that in the following two months, Bitcoin will likely fluctuate with the U.S. stock market, and the possibility of setting new highs and reaching new levels is relatively low.

If everything goes smoothly, it may take until the third quarter for Bitcoin to rise to the next level.