[Asia Pacific Morning Post] The Fed's fluctuating interest rate cut expectations have caused market volatility, with ETH leading the rise by 25%. This week focuses on CPI data to determine the outcome.

Welcome to this issue of the Asia-Pacific Crypto Morning Report—bringing you the key overnight dynamics affecting the regional market and global sentiment. This week's edition focuses on a review of last week and an outlook for this week (written by Paul Kim). With worsening U.S. employment data, the divergence between the Trump administration and the Fed on interest rate cuts has intensified, and the release of inflation and employment indicators has stirred expectations for interest rates in the next three months, causing market sensitivity to soar. Last week, the crypto assets market experienced severe fluctuations amid stagflation concerns, with Ethereum (ETH) rebounding strongly by 25% despite a massive outflow from the BlackRock ETF, significantly outperforming Bitcoin (BTC) which rose only 5.44%. Wall Street's well-known investor Tom Lee even claimed that "buying ETH is the most important trade for the next decade." This week, the market's attention is focused on the upcoming release of the U.S. July CPI data, the results of which will greatly influence the September FOMC interest rate cut probabilities and the short-term direction of the crypto market.

【Concerns over U.S. Stagflation Emerge, Interest Rate Cut Expectations Repeatedly Affect the Market】 Last week, the fluctuations in the crypto market began with the release of the ISM Services PMI data on Tuesday. The index showed that the expansion of the U.S. service industry is slowing, and since the implementation of Trump's "tariff policy" in April, service prices have continued to rise while employment has declined. This situation of "rising prices and declining employment" is known as stagflation—considered one of the most challenging economic crises as it ties the hands of the central bank (making it difficult to lower or raise interest rates). The market is increasingly worried that Trump's tariff policy is pushing the U.S. towards the abyss of stagflation.

At the same time, the market's expectations for the number of rate cuts by the Fed this year have been reduced from three to two. The prices of most risk assets sensitive to market liquidity, including Crypto Assets, have experienced sharp fluctuations accompanied by the repeated changes in interest rate expectations: prices fell when a cut of two times was expected, and rebounded when three cuts were expected. This tug-of-war continued throughout the week.

The major news at the end of the week is: Stephen Miran, the Chairman of the White House Council of Economic Advisers, has been nominated to replace Adriana Kugler in the vacant position on the Fed's board. Miran is one of Trump's closest economic advisors. The market interprets this as a signal of Trump's strong pressure for interest rate cuts, and by the close of the U.S. stock market, expectations for three interest rate cuts this year have regained the upper hand.

【ETH Counterattack: Strong Recovery After BlackRock Outflow Shockwave】 Last weekend, the unexpected remarks by Fed Vice Chair Michelle Bowman ignited the rise of Ethereum. In her speech at the Kansas Bankers Association, she stated directly that "three rate cuts are needed this year," emphasizing that recent employment data indicates the need for proactive measures to prevent further deterioration of the economy and employment. The price of ETH briefly broke through the $4300 mark in response.

However, the actions of market giant BlackRock on Monday shocked the market: it withdrew huge amounts of funds simultaneously from the Bitcoin spot ETF (IBIT) and the Ethereum spot ETF (ETHA), causing uncertainty. On that day, IBIT recorded a net outflow of $292.21 million, marking the largest single-day outflow in over two months (since May 30). Analysts warned that the BTC price could drop to $111,000.

Worse still, ETHA faced a net outflow of $375 million, equivalent to 3% of BlackRock's daily reduction in its ETH holdings. This massive outflow directly ended Ethereum's spot ETF's record of 21 days of net inflows.

【Institutional Support for ETH: Tom Lee Calls it the "Most Important Trade of the Next Decade"】 Fortunately, the outflow of ETF funds only lasted for two days before it stopped. Among the two major crypto assets, Ethereum has shown a faster rebound momentum, and the strategic purchases of ETH by U.S. listed companies have become a key catalyst. Bitmain has set a record as the world's largest ETH holding publicly listed company, holding over 830,000 ETH.

Tom Lee, the well-known investment guru from Wall Street and co-founder of Fundstrat, strongly supports ETH, emphasizing that "buying Ethereum will be the most important trade of my next decade." Geoff Kendrick, head of digital asset research at Standard Chartered Bank, pointed out that buying stocks of public companies that hold ETH may be more attractive than ETH spot ETFs.

Last week also witnessed Trump signing an executive order to protect legitimate crypto companies from bank debanking and to open up the retirement fund market. Although Bitcoin returned above $119,000 over the weekend, its weekly increase was only 5.44%; Solana (SOL), with a market cap less than ETH, surged by 15.04%; while ETH showcased its leading position with an impressive weekly increase of 25.01%.

[This Week's Outlook: CPI Data as a Watershed for Market Strength] It is expected that the market will continue last week's pattern. The focus is on: Will the Fed cut interest rates three times this year? Will the September Federal Open Market Committee (FOMC) meeting clearly initiate rate cuts?

In this context, the U.S. July Consumer Price Index (CPI) data to be released on Tuesday is crucial. If the actual CPI significantly exceeds market expectations, the prospects for interest rate cuts in the second half of the year will be thrown into uncertainty, and the prices of crypto assets may face adjustments again. The Producer Price Index (PPI) released on Thursday evening and the U.S. July industrial output and retail sales data on Friday are also worth paying attention to, as they will provide evidence of whether the U.S. economy is slipping into recession.

In addition, the remarks of Fed officials that have a significant impact on the September FOMC decision should not be overlooked. On Wednesday, Chicago Fed President Austan Goolsbee will attend the Springfield Chamber of Commerce monetary policy luncheon, and any comments he makes regarding the economic outlook or interest rate direction could disturb the market.

According to FedWatch data (as of the morning release on Monday), the market expects an 88.4% probability of a 25 basis point rate cut at the September FOMC meeting. After Vice Chair Bowman's remarks over the weekend, this probability may slightly increase when the benchmark interest rate futures market reopens. However, after this week's crucial data cleanse, whether the rate cut probability can remain high is still uncertain.

[Conclusion: Data Week is Coming, Buckle Up] Last week, the market experienced significant fluctuations amid concerns of stagflation and policy games, with Ethereum standing out due to its strong fundamentals and institutional backing. However, the massive ETF outflow from BlackRock warns of market vulnerability. This week, heavy economic data will be released, especially the CPI, which will directly dictate the market's expectations for the Fed's interest rate cut path and trigger a new round of fluctuations in crypto assets. Investors need to closely monitor data releases and statements from Fed officials, maintaining flexible strategies amid uncertainty to prepare for potential market shifts.