The recent interest rate cut signal released by the Federal Reserve has further increased market expectations for loose liquidity, and has pushed some funds into the crypto market in advance. As an emerging asset class, its narrative of hedging traditional risks and storing value continues to attract institutional interest.
At a time when global economic recovery is intertwined with uncertainty, every move of the Federal Reserve's monetary policy has always captured investors' attention.
At the end of August, Federal Reserve Chairman Powell sent a clear signal to the market about a shift in monetary policy. He not only reversed his hawkish stance in July, which had prioritized inflation risk over employment risk, but also warned of downside risks to employment leading to a "sharp increase in layoffs and a rise in unemployment." These comments caused market expectations for a September rate cut to surge from 75% to over 90%, signaling a shift in the Fed's policy balance toward boosting employment.
Powell's shift isn't groundless; it stems from the reality of a significant slowdown in US economic momentum. US GDP growth is projected to average 1.2% annualized in the first half of 2025, significantly lower than the 2.5% growth rate for the same period in 2024. More crucially, while the unemployment rate appears stable at 4.2%, underlying fatigue is evident in the labor market: US nonfarm payrolls plummeted to 73,000 in July, significantly below the expected 104,000 and the smallest increase since October of last year. Furthermore, nonfarm payrolls for May and June were revised downward by a cumulative 258,000. This suggests that the momentum of the economic expansion has weakened significantly.
However, the path to a rate cut is not smooth sailing, as inflation remains a variable the Fed cannot ignore. While Powell believes the price impact of tariffs is more likely a "one-time shock" than sustained inflation, and the final estimate of the five- to ten-year inflation rate fell to 3.5% in August (below the expected 3.9%), the August CPI data (unreleased at press time) will be the final deciding factor in whether a rate cut will be made in September. If August inflation figures rise sharply beyond expectations (for example, a month-over-month CPI increase exceeding 0.5%), the Fed could still be forced to reassess its decision.
Furthermore, the US economy is shrouded in the shadow of quasi-stagflation. On the one hand, economic growth is slowing; on the other, inflationary pressures persist under the influence of tariffs and tightened immigration policies. This complex situation of "slowing growth and coexisting price pressures" suggests that Powell's dovish shift lacks confidence, and his rhetoric is more cautious.
The Fed's future policy path will be highly data-dependent, especially if inflation and employment objectives conflict. If inflation risks subsequently outweigh employment risks, Powell could also halt rate cuts. Therefore, while we embrace the short-term asset price euphoria brought about by the expectation of rate cuts, we must remain vigilant regarding the complexity of economic fundamentals and the volatile nature of monetary policy.
So far this year, US stocks have performed strongly, driven by the AI revolution and expectations of a policy shift. They have reached new highs several times in the first half of the year, with technology and growth stocks leading the gains. As of the end of August, the S&P 500 index had risen nearly 10% year-to-date, breaking several historical records and even breaking the 6,500 point mark during intraday trading.
Financial reports indicate that corporate profits are a key factor supporting market capitalization. US stocks reported strong Q2 2025 financial reports, with AI-related companies showing particularly strong performance, becoming the core driver of this recent market rally. Nvidia (NVDA), a bellwether in the AI field, reported a significant 56% year-over-year revenue increase in its Q2 earnings report. While data center revenue fell slightly short of expectations, the overall performance confirmed the sustainability of the AI boom, boosting market confidence. Other chip stocks also performed well, with Broadcom (AVGO) and Micron Technology (MU) rising 3%. AI-focused stock Snowflake (SNOW) saw its share price surge by approximately 21% after its earnings exceeded expectations.
HSBC analysis indicates that AI has a significant impact on businesses, with 44 S&P 500 companies leveraging AI to achieve 1.5% operating cost savings and an average 24% efficiency improvement, which has partially offset the pressure from tariffs. The Federal Reserve's monetary policy outlook also provided significant support to the market, with the high probability of a September interest rate cut boosting the performance of risky assets such as US stocks.
However, despite the strong performance of the US stock market, its valuation is already at a historically high level. As of August, the S&P 500's expected price-to-earnings ratio was approximately 22.5 times, which is lower than its historical peak but still well above the average level of 16.8 times since 2000.
Overall, the US stock market in August 2025 will see a significant boost in risk appetite, driven by AI innovation, relatively robust economic fundamentals, and expectations of loose monetary policy. While elevated valuations warrant some caution, robust corporate earnings growth and the potential for an upcoming interest rate cut cycle make US stocks still considered attractive.
The Bitcoin market showed unprecedented maturity in August 2025.
On the one hand, according to JPMorgan Chase analysis, Bitcoin's six-month rolling volatility has plummeted from nearly 60% at the beginning of the year to approximately 30%, a record low. At the same time, the volatility ratio of Bitcoin to gold has also fallen to a record low, a change that has significantly increased Bitcoin's appeal to institutional investors.
The reduction in volatility is mainly attributed to the fact that regulated investment tools such as the US spot Bitcoin ETF have attracted a large amount of institutional funds, whose holdings have accounted for more than 6% of the total supply of Bitcoin, and the continued allocation of Bitcoin by corporate treasury (the DAT trend). These factors have jointly "locked" part of the circulating supply and reduced the floating chips in the market.
The DAT (Digital Asset Treasury) trend continued to deepen in August. Its core focus is on listed companies and institutions using cryptocurrencies like Bitcoin as strategic reserve assets. This is particularly true for listed companies, which are shifting their capital allocation from project investments to holding cryptocurrencies on their balance sheets. This means using their balance sheets to "backstop" cryptocurrencies. This not only provides sustained purchasing power for the market, making them one of the most powerful buyers, but also provides strong support for the price of cryptocurrencies. For companies, such as Strategy (MSTR), as long as their market capitalization is higher than the actual value of their Bitcoin holdings, they have the opportunity to raise funds from the market through private placements, convertible bonds, and preferred stock sales. These funds can then be used to purchase more Bitcoin, allowing the company to accumulate more coins at a lower cost. Statistics show that as of mid-August, cumulative DAT financing in 2025 has exceeded $15 billion, significantly exceeding the total amount raised by crypto VCs during the same period. Leading institutions view DATs as an alternative or supplement to ETFs, emphasizing their advantages in liquidity and flexibility. At this year's Bitcoin Asia 2025 event in Hong Kong, the DAT trend also became a hot topic in the industry.
Meanwhile, favorable policy support continues. As the only crypto asset officially included in sovereign reserves, Bitcoin's global regulatory framework is becoming increasingly clear. For example, the passage of the US CLARITY Act and the repeal of SAB 121 accounting guidance have paved the way for traditional financial institutions such as banks to directly hold Bitcoin. This has also prompted other countries, such as Norway and the Czech Republic, to consider adding Bitcoin to their foreign exchange reserves. In August, US President Trump officially signed an executive order allowing 401(k) retirement accounts to invest in digital assets such as Bitcoin. This move opens the door to the crypto market for the US's $12.5 trillion retirement system. Market analysts believe that even if just 1% of retirement funds are allocated to this, it could generate tens of billions of dollars in potential incremental demand, and the long-term purchasing power it generates cannot be underestimated.
It's worth noting that August saw significant capital rotation within the crypto market. Bitcoin ETFs experienced significant outflows, with net outflows exceeding $2 billion. Meanwhile, Ethereum ETFs attracted significant institutional capital, with net inflows of approximately $4 billion. This reflects the shift in investors to capitalizing on the growth potential of ecosystems like Ethereum after Bitcoin reached a record high. However, this rotation was also rapid, with the Ethereum ETF experiencing a significant outflow of $164.6 million at the end of August, indicating short-term volatility in market sentiment.
Despite short-term capital rotation, the continued entry of top financial institutions signifies the formal integration of cryptocurrencies into the traditional financial ecosystem. According to Bloomberg, BlackRock's Bitcoin Spot ETF attracted several top global financial institutions in the second quarter of 2025, ranging from hedge funds and market makers to large banks, with holdings spanning both proprietary and client funds. JPMorgan Chase analysis suggests that based on risk-adjusted valuations, Bitcoin's "fair price" should be around $126,000, indicating potential upside relative to gold.
In short, August's significant decline in Bitcoin volatility, the evolution of institutional adoption patterns, and the acceleration of internal capital rotation all suggest that the crypto market is undergoing a profound structural shift. While short-term capital flows may still fluctuate, the institutional foundations and macroeconomic dynamics supporting the long-term value of cryptocurrencies are becoming increasingly solid.
In the long run, as the interest rate cut cycle boosts risk appetite and the crypto ecosystem continues to improve, the resilience of Bitcoin's core assets will continue to attract capital inflows. The short-term fluctuations brought about by market rotation will provide better layout opportunities for bullish funds.
