Crypto Market August Report: Fed Signals Restart of Rate Cuts in September, Rotation in the Crypto Market Hides Layout Opportunities

The recent signals of interest rate cuts released by the Fed have further heated market expectations for liquidity easing, prompting some funds to flow into the crypto market in advance. As an emerging asset class, its narrative of hedging traditional risks and value storage continues to attract interest at the institutional level.

In the current context of intertwining global economic recovery and uncertainty, every move of the Fed's monetary policy continues to capture the attention of investors.

At the end of August, Fed Chairman Powell sent a clear signal to the market about a shift in monetary policy. He not only changed his hawkish stance from July, where he stated that "the risks of inflation outweigh the risks to employment," but also warned that the downward risk to employment could lead to "a significant increase in layoffs and a rise in the unemployment rate." This statement caused the market's expectations for a rate cut in September to soar from 75% to over 90%, marking a shift in the Fed's policy balance towards promoting employment.

Powell's pivot is not without reason; it is backed by the reality of a significant slowdown in the momentum of the U.S. economy. The annualized GDP growth rate in the first half of 2025 is projected to average 1.2%, far lower than 2.5% in the same period of 2024. More critically, although the unemployment rate in the labor market appears stable at 4.2%, underlying weakness is already apparent: the number of non-farm jobs added in the U.S. in July plummeted to 73,000, significantly below the expected 104,000, marking the smallest increase since October of last year, and the non-farm employment figures for May and June were cumulatively revised down by 258,000. This indicates that the strength of economic expansion is no longer as robust as before.

However, the road to interest rate cuts is not smooth, as inflation remains a variable that the Fed cannot ignore. Although Powell judges that the price impact from tariffs is more likely a "one-time shock" rather than persistent inflation, and the expected final value of the five to ten-year inflation rate in August has fallen to 3.5% (below the expected 3.9%), the CPI data for August (which has not yet been released at the time of writing) will be the "deciding factor" in determining whether to cut rates in September. If the August inflation data rises significantly above expectations (for example, if the CPI month-on-month growth rate exceeds 0.5%), it may still force the Fed to reassess its decisions.

The U.S. economy is still shrouded in the shadow of "stagflation-like" conditions. On one hand, economic growth is slowing; on the other hand, inflationary pressures have not completely dissipated under the influence of tariffs and tightened immigration policies. This complex situation of "slowing growth coexisting with price pressures" indicates that Powell's dovish shift lacks confidence, and his wording is also more cautious.

The future policy path of the Fed will heavily depend on data, especially when there is a conflict between the two major goals of inflation and employment. If subsequent inflation risks outweigh employment risks, Powell may also halt interest rate cuts. Therefore, while we embrace the short-term asset price euphoria brought by expectations of interest rate cuts, we must remain clear-headed about the complexities of the economic fundamentals and the volatility of monetary policy.

Since the beginning of this year, the US stock market has performed strongly driven by the dual forces of the AI revolution and expectations of policy shifts. In the first half of the year, US stocks have repeatedly hit new highs, with technology stocks and growth stocks leading the way. By the end of August, the S&P 500 index has risen nearly 10% year-to-date and has repeatedly set historical records, briefly breaking through the 6500-point mark during trading.

From the financial report data, corporate profits are a key factor supporting market capitalization. The Q2 2025 financial reports of the US stock market performed excellently, with AI-related companies particularly outstanding, becoming the core driving force behind the recent rise in the US stock market. Nvidia (NVDA), as a bellwether in the AI field, reported a significant year-on-year revenue increase of 56% in its Q2 financial report. Although data center revenue was slightly below expectations, the overall performance confirmed the sustainability of the AI boom, adding confidence to the market. Other chip stocks also performed well, with Broadcom (AVGO) and Micron Technology (MU) rising by 3%. AI concept stock Snowflake (SNOW) saw its share price soar by about 21% due to better-than-expected financial results.

HSBC's analysis points out that the impact of AI on businesses is significant, with 44 S&P 500 companies achieving a 1.5% reduction in operating costs and an average efficiency improvement of 24% through AI, which partially offsets the pressure from tariffs. The Fed's monetary policy expectations have also provided important support to the market, with a high probability of interest rate cuts in September boosting the performance of risk assets such as U.S. stocks.

However, despite the strong performance of the US stock market, its valuation is at a historical high. As of August, the expected price-to-earnings ratio of the S&P 500 index is approximately 22.5 times, which is lower than the historical peak but still significantly higher than the average level of 16.8 times since 2000.

Overall, the US stock market in August 2025 is significantly boosted in risk appetite due to the combined effects of AI innovation, relatively robust economic fundamentals, and expectations of loose monetary policy. Although high valuations suggest the market should remain vigilant, the strong growth in corporate earnings and the potential upcoming rate cut cycle make the US stock market still considered attractive.

The Bitcoin market demonstrated unprecedented maturity again in August 2025.

On one hand, according to analysis by JPMorgan, Bitcoin's six-month rolling volatility has plummeted from nearly 60% at the beginning of the year to around 30%, hitting a historical low. At the same time, the volatility ratio of Bitcoin to gold has also fallen to a historical low, significantly increasing Bitcoin's appeal to institutional investors.

The decrease in volatility is primarily attributed to the attraction of substantial institutional funds by regulated investment tools such as the US spot Bitcoin ETF, whose holdings now account for over 6% of the total Bitcoin supply, as well as the continuous allocation of Bitcoin by corporate treasuries (i.e., the DAT trend). These factors have collectively "locked" part of the circulating supply, reducing the market's floating chips.

The wave of DAT (Digital Asset Treasury) continued to deepen in August, with the core being that listed companies and institutions are using cryptocurrencies such as Bitcoin as strategic reserve assets. This is particularly true for listed companies, whose capital allocation is shifting from project investments to holding cryptocurrencies on their balance sheets, effectively using their own balance sheets to endorse cryptocurrencies. This not only provides continuous purchasing power to the market, making them one of the strongest buyers in the market, but also brings strong support to cryptocurrency prices. For companies, taking Strategy (MSTR) as an example, as long as the company's market value is higher than the actual value of the Bitcoin on its books, there is an opportunity to raise funds from the market through methods such as private placements, issuing convertible bonds, or selling preferred stocks, and then use these funds to purchase more Bitcoin. This way, the company can accumulate more coins at a lower cost. Statistics show that as of mid-August, the cumulative financing of DAT in 2025 has exceeded $15 billion, significantly higher than the scale of crypto VC during the same period. Top institutions view DAT as an alternative/supplement to ETFs, emphasizing liquidity and flexibility advantages. At this year's Bitcoin Asia 2025 (Hong Kong) event, the trend of DAT also became a hot topic of discussion in the industry.

At the same time, the favorable policies are still ongoing. Bitcoin, as the only encryption asset officially included in sovereign reserves, has a global regulatory framework that is becoming increasingly clear. For example, the passing of the U.S. "CLARITY Act" and the repeal of SAB 121 accounting guidelines have paved the way for traditional financial institutions like banks to hold Bitcoin directly. This has also prompted other countries, such as Norway and the Czech Republic, to consider including Bitcoin in their foreign exchange reserves. U.S. President Trump officially signed an executive order in August, allowing 401(k) retirement accounts to invest in Bitcoin and other digital assets. This move has opened the door to the crypto market for the U.S. retirement system, which amounts to as much as $12.5 trillion. Market analysis suggests that even if only 1% of retirement funds are allocated, it could bring hundreds of billions of dollars in potential incremental demand to the market, and the long-term purchasing power it brings should not be underestimated.

It is worth mentioning that there was significant capital rotation within the crypto market in August. The Bitcoin ETF experienced notable capital outflows, with a net outflow exceeding $2 billion. In contrast, the Ethereum ETF attracted a substantial amount of institutional funds, with a net inflow of around $4 billion. This reflects that some investors, after Bitcoin reached a historic high, are turning to explore the growth potential of Ethereum and other ecosystems. However, the pace of rotation is also rapid, as at the end of August, the Ethereum ETF also saw a large outflow of $164.6 million, indicating that market sentiment is subject to short-term fluctuations.

Despite the short-term rotation of funds, the continued entry of top financial institutions means that cryptocurrency has officially been incorporated into the traditional financial ecosystem. According to Bloomberg, BlackRock's Bitcoin spot ETF attracted several global top financial institutions in the second quarter of 2025, with positions ranging from hedge funds, market makers to large banks, covering both proprietary and client funds. JPMorgan analysis points out that based on risk-adjusted valuation, the "fair price" of Bitcoin should be around $126,000, indicating potential upside compared to gold.

In short, the significant decline in Bitcoin volatility, the evolution of institutional adoption patterns, and the acceleration of internal capital rotation in August all indicate that the crypto market is undergoing a profound structural transformation. Short-term capital flows will still fluctuate, but the institutional foundation and macro forces supporting the long-term value of cryptocurrencies have become increasingly solid.

In the long term, under the backdrop of an interest rate cut cycle boosting risk appetite and the continuous improvement of the crypto ecosystem, the resilience of Bitcoin as a core asset will still attract capital inflows. The short-term volatility brought by market rotations, on the contrary, provides better layout opportunities for bullish funds.