Powell's speech tonight revolves around two main points: clarifying the signal to "end the balance sheet reduction" and the guidance for a "rate cut in October," which directly determines the market's expectations for liquidity.
First, regarding the "end of balance sheet reduction," he previously mentioned that the Federal Reserve might "come close to stopping the balance sheet reduction in the coming months." If he reinforces this signal this time, it will mark a turning point in the liquidity tightening cycle. Stopping the balance sheet reduction means that dollar liquidity will no longer continue to tighten and may even stabilize, which is beneficial for high-risk assets like Bitcoin.
Next, looking at the "rate cut in October," the futures market currently has a 98% probability of betting on a 25 basis point rate cut by the Federal Reserve on October 29-30. Powell needs to clarify whether he supports this expectation; if he sends dovish signals, market sentiment could rise; if he emphasizes inflation risks, the rate cut expectations may be dampened.
Currently, market sentiment is quite fragile. Last week, when Trump's tariff threats emerged, cryptocurrencies experienced a direct crash, with Bitcoin plummeting from 126,000 to below 102,000, triggering large-scale liquidations. Although it has rebounded recently, confidence has not fully recovered, and just one statement from Powell could trigger new volatility. On the policy front, things are also concerning; U.S. trade policies may drive up inflation, and global regulation remains fragmented, adding to the uncertainties that amplify the impact of the Federal Reserve's policies.
For the cryptocurrency community, in the short term, volatility will increase. Regardless of what Powell says, prices of mainstream cryptocurrencies like Bitcoin may fluctuate dramatically. In the medium term, if he clearly shifts towards a dovish stance, expectations for liquidity improvement in the coming months will provide stronger support for the crypto market.
In short, Powell's speech tonight is about whether the "end of balance sheet reduction" and the "rate cut in October" can be substantiated, which directly influences the market's judgment on liquidity and subsequently affects the recent trends in cryptocurrencies. The market is currently fragile and sensitive, making his words carry even more weight.
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