BTC hits a new historical high, the market awaits interest rate cuts and further advancements.

In May, the three major U.S. stock indices continued to rise strongly, with BTC even reaching a new all-time high. Although the "tariff war" has eased somewhat, no substantial breakthroughs have been made. The "Russia-Ukraine war" continues to oscillate between negotiations and offensives.

The influx of funds is promising, with over $2.7 billion flowing into the BTC spot ETF channel. Long-term holders' positions are close to their peak, while the BTC holdings on exchanges continue to decline, indicating a strong supply and demand dynamic for BTC.

At the policy level, the state-level BTC reserve bill in the United States has achieved a historic breakthrough. The bill related to stablecoins has also been passed in the Senate.

The U.S. employment data shows strong performance, inflation continues to decline, and GDP expectations have begun to be revised upward. This may be the fundamental reason for the market's strength. However, the tariff war has not yet ended, and the panic surrounding U.S. debt has not been completely eliminated. The performance of U.S. stocks and BTC this month has already incorporated the most optimistic expectations, and the market may experience fluctuations to eliminate uncertainty while awaiting the interest rate cuts in the third quarter.

Macroeconomics: The US economy may be experiencing a "mild recession"

The global geopolitical game and the strength of the American democratic system ultimately led market expectations to return to rationality, ushering in a sustained rebound and resulting in the most optimistic pricing.

In the face of the severe fluctuations in the financial markets triggered by the "triple kill" of stocks, bonds, and foreign exchange, along with strong opposition from the business community, the "reciprocal tariff war" quickly entered the negotiation stage in May and first reached a tariff agreement with the United Kingdom.

In early May, the United States and China held the first round of trade negotiations in Switzerland, putting a pause on their intense tariff war. On May 12, both sides issued a joint statement, committing to reduce the previously imposed high tariffs within the next 90 days, and stated that they would continue to negotiate on economic and trade relations. On that day, the S&P 500 index surged by 3.26%.

In early April, the US stock market began to rebound significantly, basically recovering the losses since the trade war. In May, with the formal start of negotiations between China and the US, the previously stagnant US stock market gained momentum again and continued to rise. As of the 31st, the Nasdaq, S&P 500, and Dow Jones indices recorded monthly gains of 9.56%, 6.15%, and 3.94%, respectively.

The economic data released at the end of May showed that the U.S. economy contracted at an annual rate of 0.2% in the first quarter. This figure is a slight upward adjustment from the previously announced initial value (a contraction of 0.3%), but it still indicates that the U.S. economy was affected to some extent at the beginning of the year.

After experiencing underestimation over the past few months, the GDP soft data has rebounded. The GDP Now data released by the Atlanta Fed shows that since the end of April, the data has returned above the zero axis, reaching 3.8% by the end of May, reflecting an optimistic sentiment after the slowdown of the trade war.

The PCE data released in May showed that inflation continues to ease, with the PCE annual rate declining for three consecutive months to a low of 2.15%, and the core PCE falling to 2.52%, the lowest since the pandemic, gradually approaching the 2% target that the Federal Reserve aims for in rate cuts.

The employment data exceeded market expectations. Data released in early May showed that non-farm payrolls increased by 177,000 in April 2024, higher than the market expectation of 138,000. As of the week ending May 24, the number of first-time unemployment claims was 240,000, an increase of 14,000 from the previous week, surpassing the market expectation of 230,000. The strong employment data alleviates market concerns about a recession in the U.S. economy on one hand, and on the other hand, it allows the Federal Reserve to focus on its "inflation reduction" goal.

This month, the Federal Reserve's meeting decided to keep interest rates unchanged for three consecutive months. Although it had released some "dovish" statements during the turbulent financial market, the Federal Reserve withstood the pressure and remained inactive after the market stabilized, emphasizing that the uncertainty caused by tariffs could lead to a rebound in inflation data.

The strong performance of the financial markets, coupled with the fact that the "reciprocal tariff" battle is not over and inflation may rebound, has led the market to judge that the Federal Reserve is unlikely to restart interest rate cuts in the first half of the year. The latest data shows that traders expect the U.S. to cut interest rates only twice this year, in September and December, each by 25 basis points. This expectation actually limits the space for liquidity to drive significant increases in U.S. stocks and crypto assets.

Based on the current data and situation, it is expected that the US stock market and BTC will likely maintain a volatile trend in the next two months, until expectations of interest rate cuts in August may drive them to reach historical highs. This judgment includes an optimistic conclusion regarding the "reciprocal tariff war" and a relatively "mild" recession in the US economy.

The US GDP recorded a decline of -0.21% in the first quarter, and the "reciprocal tariff war" in the second quarter has led to a drop in consumer confidence and market turmoil. If this results in a slight drop in GDP for the second quarter, it would meet the criteria for a "mild recession". Therefore, starting interest rate cuts in September may be a more cautious expectation.

Crypto Assets: Strong Capital Inflows Drive BTC to New Historical Highs

In May, BTC opened at $94182.55 and closed at $104645.87, with an increase of $10463.33 for the month, a rise of 11.11%, a volatility of 19.79%, and the trading volume has declined for two consecutive months.

From a technical indicator perspective, after the BTC price returned to the "Trump Bottom" (90,000~110,000 USD) in April, it reached a new historical high of 112,000 USD and surged above the "first bullish uptrend line."

In a high interest rate environment, retail investors have not formed a truly decisive buying power. In fact, since March of last year, the daily new addresses for BTC have dropped to a low level.

In the rebound since April, the decisive force comes from institutional investors.

According to the announcement data from Strategy Company, it has increased its holdings by 133,850 BTC since 2025, bringing its total holdings to 580,250 BTC.

Since the approval of the BTC spot ETF on January 11, 2024, and the passage of the Financial Innovation and Technology Act (FIT21) by the U.S. House of Representatives in May 2024, crypto assets and blockchain technology have gradually been established as key development areas in the United States. Subsequently, the application of crypto assets represented by BTC has further mainstreamed in the U.S.

In March 2025, the president of the American Trust signed an executive order to establish a "Strategic Bitcoin Reserve," designating approximately 200,000 BTC held by the government as national reserve assets.

Subsequently, more than 20 states in the United States began to propose state-level Bitcoin reserve bills. This demand made breakthroughs in May as well. On May 7, the governor of New Hampshire signed a bill, becoming the first state in the nation to officially include cryptocurrency in its strategic reserves. The bill allows the state treasurer to invest up to 5% of state government funds in cryptocurrencies. Relevant Bitcoin reserve bills in Texas and Arizona have also received Senate votes and are submitted to the governors of both states for signing into effect.

On the blockchain and Web3 front, on May 19, a bill regulating the development of stablecoins was passed in the Senate with a procedural vote of 66 in favor and 32 against, paving the way for the final signing of the bill. In the same month, the Hong Kong Legislative Council officially passed a draft ordinance on the 21st, establishing a licensing system for fiat stablecoin issuers.

Several large banks in the United States are exploring collaboration to launch a joint stablecoin, currently involving several well-known financial institutions.

Stablecoins with a market cap exceeding $240 billion will enter an era of compliant development. Beyond BTC, stablecoins are likely to become the second most widely adopted crypto asset and may become the first killer application in the Web3 space to surpass 1 billion users. This lays the foundational use case for the robust development of blockchain, especially smart contract platforms.

After being incorporated into the compliance system, BTC and blockchain are becoming the technological high ground that the United States must occupy. The investment and speculation sentiment triggered by this trend is spreading. In addition to Strategy, many companies around the world, including some well-known enterprises, are launching accumulation plans for BTC and other crypto assets (such as ETH and SOL).

The expansion of use cases, along with the FOMO sentiment and purchasing power triggered by compliance breakthroughs, has become a fundamental driving force behind the price increase of BTC and other crypto assets.

Capital: Optimistic Pricing + Aggressive Expansion

During the sharp decline of the US stock market in March and April, the inflow of BTC spot ETFs came to an abrupt halt, causing BTC to adjust over 30% alongside the US stocks (the largest pullback in this cycle). However, since April and May, with a strong rebound in the US stock market, the buying power of BTC spot ETFs has also robustly recovered, with inflows of 605 million and 2.775 billion USD respectively, driving BTC to recover all its losses and reach a new historical high of 112,000 USD.

In terms of stablecoins (not all used for crypto trading), the scale has also expanded, with inflows of 5.375 billion and 5.567 billion USD in April and May, respectively, but compared to the fluctuations in funds of the BTC spot ETF channel, the changes are relatively small.

It was previously pointed out that the pricing power of BTC has been transferred from on-site funds to the funds of BTC spot ETF channels and similar institutions like Strategy. These institutions exhibit a long-term subjective bullish attribute, with the underlying reason being that BTC and crypto assets are continuously making breakthrough progress at the policy level in the United States. This is not only the reason why BTC was able to quickly rebound in April and May, surpassing the Nasdaq to set a new historical high, but also the long-term logical support that can be optimistic about the future market.

However, it is important to note that the U.S. stock market has currently priced in an extremely optimistic outlook regarding the tariff war, possibly implying that the U.S. economy will not experience a significant recession. It is currently difficult for the U.S. stock market to break through new highs, and fluctuations are inevitable. Although institutions such as Strategy continue to invest, the BTC spot ETF struggles to develop an independent trend different from the Nasdaq index, so expecting BTC to reach new highs again in the medium to short term may be overly optimistic.

Chip Structure: Exchange BTC Holdings Continue to Decline

During the decline in March to April, long-term investors in BTC started to increase their holdings again, which objectively acted as a stabilizer to reduce market selling pressure.

As of the end of May, long-term holders held a total of 14.4199 million coins, close to historical highs. Correspondingly, the inventory scale of centralized exchanges has continued to decline, currently only 2.9882 million coins, approaching the level at the end of November 2020.

During the previous cycle, when liquidity surged, long-term holders' choice to sell objectively restrained the price increase. However, when prices fell during the cycle, long-term holders slowed down their selling or even turned to increase their holdings, and this cycle is no exception.

The difference from previous cycles is that the "secondary sell-off" by long-term holders in the past would end the bull market, while in this round, the market chose to continue upward after the "secondary sell-off". This may be because institutions of the Strategy type have joined the structure of long-term holders, leading to a change in market trends. Whether this change is permanent or temporary needs to be closely monitored.

Conclusion

Although I maintain an optimistic attitude based on long-termism regarding the expansion of BTC use cases and its long-term trend, the strength of the BTC price and the intensity of its movement in the short term still exceed the most optimistic estimates.

The reason lies in the overly optimistic sentiment in the risk markets, including US stocks, and the investment and speculation frenzy triggered by the significant expansion of use cases for BTC in the United States. While there is ample confidence in the latter, the pricing of the "reciprocal tariff war" in the US stock and BTC markets seems overly optimistic, and there are bound to be many twists and turns along the way. In addition, expectations for interest rate cuts by the Federal Reserve have also been lowered.

In the March report, it was expected that BTC would begin a reversal trend in the summer, but the market reacted beyond expectations, reaching a new high as early as May. Considering various uncertain factors and liquidity expectations, the forecast has been adjusted.