Global monetary policy trends towards easing, technological innovation drives the rise of U.S. stocks, and the regulation of encryption assets is becoming increasingly clear.

1. A New Interest Rate Cut Cycle is Brewing Amidst Monetary Policy Watchfulness

At the beginning of this month, the Federal Reserve maintained the federal funds rate target range at 5.25% to 5.50% and announced a slowdown in balance sheet reduction starting in June. The focus of the meeting remained on "high inflation and the need to wait and see for interest rate cuts," which aligns with market expectations. Currently, the market estimates that the probability of an interest rate cut in September is close to 50%, and it is almost certain that there will be a rate cut before the end of the year.

As time goes by, Federal Reserve Governor Waller further clarified the conditions for interest rate cuts, providing clearer guidance to the market. He pointed out that, unless the labor market shows significant weakness, good inflation data needs to be observed for another three to five months before considering a rate cut by the end of the year.

This viewpoint is quite reasonable. The US CPI in April rose 3.4% year-on-year, which is in line with expectations. Although the non-farm payrolls in April increased less than expected, the number of initial jobless claims remains low, indicating persistent resilience in the labor market. The preliminary values of the manufacturing and services PMI in May both exceeded expectations, so the Federal Reserve indeed needs to observe further.

However, there are already signs that interest rate cuts are approaching. The Federal Reserve and two other regulatory agencies are formulating new plans to relax the previous requirements for large banks to increase their capital, allowing banks to raise their loan ratios to alleviate profit pressure, which is seen as one of the important signals for interest rate cuts.

From a global perspective, the interest rate cut cycle has actually begun. According to a report by Nomura Securities, over a dozen major central banks around the world have started to cut interest rates. It is expected that by the end of June, the European Central Bank, Swiss National Bank, and Bank of Canada will join the ranks of those cutting rates. Amidst the global wave of interest rate cuts, an interest rate cut in the United States will also be an inevitable trend.

2. Nvidia Hits New Highs, Interest Rate Cuts May Change US Stock Style

NVIDIA recently announced that its first-quarter results for the fiscal year 2025 greatly exceeded expectations: revenue grew 262% year-on-year to $26 billion, net profit increased 620% year-on-year to $14.88 billion, and earnings per share were $6.12. Data center revenue grew 427% year-on-year to $22.6 billion, setting a new historical record.

Subsequently, at the opening, Nvidia's stock price rose by as much as 11.92%, with a total market value exceeding $2.6 trillion, ranking third in U.S. stock market value, surpassing the entire German stock market. Interestingly, on that day, aside from Nvidia, all six other major tech giants saw declines, sparking jokes about "the U.S. stock market relies entirely on Nvidia."

This phenomenon is not accidental. In recent years, the rise in the U.S. stock market has almost entirely come from AI-related sectors; excluding the AI sector, other individual stocks have limited gains. Looking from a longer time dimension, the "Seven Giants" highly related to AI have almost supported the entire U.S. stock market. Excluding these seven companies, the U.S. stock market's returns are not high, while the gains in other global markets are nearly zero.

It can be said that the recent rise in the global market is mainly due to technological innovations in the United States. This situation is not healthy, and the AI-driven market may also face a significant correction due to the burst of the AI bubble.

However, the upcoming interest rate cut cycle may hedge against potential AI bubble risks. During the interest rate hike cycle, the market tends to cluster around the most certain sectors to avoid risks, resulting in an extreme AI clustering market. With the arrival of the interest rate cut cycle, market liquidity and risk appetite will increase, and the long-depressed non-AI sectors may see a turnaround, potentially changing the investment style in US stocks.

3. Positive signs for encryption assets are frequent, Ethereum spot ETF is imminent.

After a dull April, the crypto market welcomes a new round of activity this month: Bitcoin has surged above $71,000, and Ethereum skyrocketed over 20% on May 21, subsequently approaching $4,000.

The current rebound is mainly due to the positive news regarding Ethereum ETFs from the United States. Although the market officially reacted around May 24, there was a violent pump on the 21st, followed by a period of consolidation, indicating that the market believes this positive news has a long-term impact.

On May 24, the U.S. Securities and Exchange Commission ( SEC ) officially approved the 19b-4 filing regarding the Ethereum ETF, but the S-1 filing has not yet been approved. The 19b-4 rule requires exchanges to establish and implement reasonable rules to prevent market manipulation, fraud, and unfair trading. The S-1 form is the registration statement that must be submitted by a company when it goes public for the first time. In short, the SEC has approved the various details for the listing of the Ethereum ETF, but has not yet approved the specific products for any institution. Although the S-1 has not been approved, the rules are set, and the future listing is a foregone conclusion.

Coinciding with the approval of the Ethereum spot ETF, the FIT21 bill has also been passed in the House of Representatives. This bill regulates the digital asset regulatory framework, clearly defines the concept of digital assets, and delineates the responsibilities of the SEC and CFTC, paving the way for more cryptocurrency assets to apply for spot ETFs and compliance.

For a long time, the SEC has maintained an "ambiguous and rejecting" attitude towards the encryption industry, trying to exclude crypto assets with "hard but vague" statements. However, it is surprisingly approving the Ethereum spot ETF in a manner that exceeds expectations. This sudden shift may not be coincidental, as both political parties in the United States might be using crypto assets as a bargaining chip in political games.

On May 16, some Democratic senators in the United States joined forces with Republican senators to vote in favor of repealing the SAB 121 bill. This bill established accounting standards for companies that custody cryptocurrencies, meaning that banks holding cryptocurrencies must also maintain corresponding cash. Although President Biden stated he would veto the resolution, overturning SAB 121 may just be a matter of time. This sends a key signal: some Democratic senators are no longer blindly following Senator Elizabeth Warren's stance on financial and technological issues, opposing excessive SEC intervention, which may mark a significant shift in the Democratic Party's cryptocurrency policy.

On the other hand, in the Republican camp, Trump shouted the slogan "Ensure the future of encryption currency happens in the United States," trying to attract crypto asset holders with a high-profile stance to gain voter support.

In summary, the entire month of May has been filled with positive news, as encryption assets are being accepted by the traditional financial system at a speed beyond expectations, adding fuel to the bull market.

IV. Conclusion

The trend of global monetary policy easing is taking shape. Although the Federal Reserve is cautious about interest rate cuts, the rate cut actions of other major central banks and the Fed's relaxation of bank capital requirements indicate that a global monetary easing policy is imminent. Investors should closely monitor these signals and consider looking for opportunities in the bond market and interest rate-sensitive assets.

The technology sector continues to perform strongly. Nvidia's earnings report exceeded expectations, and the three major U.S. stock indexes have continued to reach new highs, highlighting the growth potential of tech stocks. It is recommended to continue focusing on leading innovative companies in the technology sector and assess their long-term growth prospects.

The SEC may abandon its view of Ethereum as a security, and the emergence of the FIT21 proposal indicates that the encryption currency industry is gradually moving towards compliance. This not only brings positive developments to the encryption currency market but also offers new investment opportunities for investors.