Recently, the cryptocurrency market has experienced a significant correction, with Bitcoin falling from a high of $97,000 to around $94,000, Ethereum breaking below the $1,850 support level, and altcoins generally seeing declines of over 15%. This volatility is closely related to the Federal Reserve's upcoming interest rate decision on May 7, as the market anticipates risks in the face of uncertainty. Below is a comprehensive analysis considering macroeconomics, policies, and technical aspects:
1. The core inducement of this round of adjustment
1. Divergence in Federal Reserve policy expectations
Although mainstream institutions predict a possible 0.25% rate cut by the Federal Reserve on May 7, over $30 million in bets on the Polymarket platform are against the rate cut, showing skepticism towards short-term easing.
If the rate cut does not materialize, the market may further decline due to expectation adjustments; if the rate cut occurs, caution is needed for potential sell-offs after the 'good news is fully priced in.'
In addition, high U.S. Treasury yields (with the federal funds rate at 5.5%) continue to suppress speculative demand for risk assets.
2. Technical support failure and high-leverage liquidations
Bitcoin has repeatedly failed to test the resistance at $95,000, triggering technical selling pressure, while Ethereum's inability to hold above $1,850 has exacerbated market pessimism. The total contract open interest across the network exceeds $50 billion, and high-leverage longs have triggered a series of liquidations as prices fell, with liquidation amounts reaching $588 million within 24 hours.
3. Divergence in capital flows
Bitcoin ETFs saw a net outflow for two consecutive days (totaling $34.2 million), as institutional funds temporarily shifted to traditional safe-haven assets like gold; meanwhile, Ethereum ETF inflows remained stable (about $20 million per day), indicating market confidence in the long-term prospects of ETH upgrades.
---
2. Key events in May: Ethereum upgrade and Federal Reserve decision
1. Ethereum protocol upgrade (May 7)
This upgrade aims to simplify the protocol architecture and enhance security. If successful, it may accelerate the development of the Layer2 ecosystem, which would be a long-term positive for ETH prices. However, in the short term, caution is needed for a potential reversal of the market trend of 'buy the expectation, sell the fact.'
2. Federal Reserve interest rate decision (May 8 at 2 AM)
Market focus includes:
Rate cut magnitude: If there is a 0.25% rate cut, it may temporarily boost risk appetite, but sustainability needs to be assessed in conjunction with tapering policies;
Policy statement: If a 'preventive rate cut' signal is released, it may alleviate market concerns about economic recession;
Cost of capital: In a high-interest-rate environment, Bitcoin's narrative as 'digital gold' may dominate the market again amidst concerns about inflation.
3. Future market outlook
1. Short term (within May): Increased volatility, direction to be validated
Bitcoin: If it holds the support at $93,000, it is expected to challenge $100,000 again; if it breaks below, it may drop to $89,000.
Ethereum: $1,800 is a key psychological level; breaking above $1,850 may initiate a corrective rally.
Other altcoins: Significantly affected by BTC fluctuations, need to pay attention to whether leading ecosystems like SOL and TON can rebound first.
2. Medium term (June to August): Dominated by macro factors and liquidity
- Interest rate cut cycle effect: If the Federal Reserve starts a series of rate cuts, Bitcoin may replicate the 500% increase seen after the 2020 halving, targeting a price of $150,000.
Institutional funds returning: BlackRock's Bitcoin ETF has surpassed the size of gold ETFs, and if funds flow back in, it could create a pattern of 'institutional support, retail following.'
3. Long term (by the end of the year): Resonance of halving cycles and technological innovation
The supply-demand effect of Bitcoin's fourth halving (April 2024) may be delayed until the second half of 2025, coupled with the expansion of the Ethereum Layer2 ecosystem and the explosion of the RWA (Real World Asset tokenization) sector, the market may enter a 'technology-driven bull market.'
4. Investment strategy recommendations
1. Risk control: Reduce leverage, avoid excessive exposure in contract holdings; prioritize allocation to core assets like BTC and ETH, and reduce positions in low-liquidity altcoins.
2. Event-driven layout:
Policy-sensitive: Pay attention to the market sentiment turning point after the Federal Reserve's decision on May 7;
Technical upgrade type: If ETH pulls back to around $1,700 after the upgrade, it could be a good opportunity to accumulate in batches.
3. Anti-fall sector allocation:
RWA (Real World Assets): Tokens like MKR and PENDLE benefit from the trend of integrating traditional finance with on-chain assets;
SocialFi and Layer2: Ecosystem tokens like TON and OP have recently shown resilience against declines, attracting high investor interest.
Summary
The current market correction is both a reaction to policy uncertainty and a necessary process for clearing high-leverage bubbles.
May 7 will become a watershed for bulls and bears. If the Federal Reserve releases easing signals and the Ethereum upgrade proceeds smoothly, the crypto market may enter a new upward cycle; conversely, caution is needed for deep adjustment risks.
