The expectation of interest rate cuts in the US is rising, and the crypto market is welcoming new opportunities

Recently, the economic data released by the United States has alleviated market concerns, and the market now predicts a high likelihood of interest rate cuts in September. The U.S. stock market is undergoing a style shift as expected, with the concentration effect of large tech stocks weakening and small-cap stocks and non-tech sectors performing actively. The crypto market experienced significant volatility in July, but it has now stabilized. The Ethereum spot ETF has begun trading; although Grayscale's selling pressure has temporarily affected prices, the selling speed is relatively fast, and the pressure is expected not to last long.

At the end of July, the United States announced a seasonally adjusted annualized GDP growth of 2.8% for the second quarter of 2024, exceeding the expected 2.0%. During the same period, the PCE price index increased by 2.6%, lower than the 3.4% in the first quarter. The core PCE price index, which is closely monitored by the Federal Reserve, grew by 2.9%, also lower than the previous value. However, the market reacted differently to these data, with significant volatility in the U.S. stock market that day.

Some investors question the accuracy of official U.S. economic data, particularly the frequent downward revisions of non-farm payroll data which have sparked controversy. In the past five months, four months of employment data have been revised down. This practice has led to market speculation that economic data may be used as a policy tool.

Long-term interest rate hikes have had a significant impact on the U.S. economy. The market generally believes that officials may "hype" the data to pave the way for interest rate cuts. This strategy has proven effective: the market now expects a 100% probability of rate cuts starting in September.

The yield on the US ten-year Treasury bonds is generally on a downward trend, as funds begin to shift from a risk-averse mode during the interest rate hike cycle to repricing various assets in the interest rate cut cycle.

Recently, the Russell 2000 small-cap index has shown a significant divergence from the Nasdaq Composite Index. In mid-July, when the Nasdaq Composite Index peaked, the Russell 2000 began to rise. This reflects the market's expectations of easing inflation, as funds flow out of large-cap stocks and into small-cap stocks. This "rotation from large to small" style shift aligns with the logic of increased market risk appetite during a rate-cutting cycle.

Currently, some companies among the "seven major tech giants" in the US stock market have released their second-quarter financial reports. The performance of Tesla and Alphabet fell short of expectations, intensifying concerns in the market regarding the overall profitability of tech stocks. If only a few companies benefit from the AI boom, combined with a shift in investment styles, the US stock market may face more adjustment pressure.

In July, the crypto market experienced significant volatility, with the price of Bitcoin rebounding from a low of $54,000 to a high of $70,000, before falling back to around $66,000. The market fluctuations were mainly influenced by factors such as the Mt. Gox case payouts, selling pressure from the German government, and Trump's speech at the Bitcoin conference.

During the speech, Trump stated that he wants to make the United States the "world's Bitcoin center," even mentioning the idea of establishing a Bitcoin national reserve. However, there are differing opinions on the actual impact of his statements on the market, reflected in the short-term volatility of Bitcoin prices.

At the same time, the Ethereum market has reached an important milestone: on the tenth anniversary of its first public offering, the Ethereum spot ETF has begun trading. However, the market reaction has been relatively subdued, with net inflows on the first day of trading, followed by sustained net outflows in the days that followed.

Grayscale's Ethereum product has seen a large outflow, similar to the situation when the Bitcoin spot ETF was launched. Grayscale is converting its existing Ethereum trust into an ETF, but its high management fees have led to significant sell-offs by investors or a shift towards competitor products. However, the selling pressure on Grayscale's ETF is currently fast, and it is expected that the selling pressure will quickly diminish.

Despite the significant impact of sentiment on the market in July, it has now shown a spiraling upward recovery trend. The continuous net inflow of Bitcoin spot ETFs reflects that market panic has not persisted, indicating that a larger market movement may be on the horizon.

Although there is uncertainty in the macro economy and traditional financial markets, the crypto asset market shows independence and resilience, with the potential to play a more important role in diversified investment portfolios. The launch of the Ethereum spot ETF brings new vitality and stability to the market. The future of the crypto market is full of challenges, but it also contains huge opportunities.