The Federal Reserve will announce the July interest rate decision tonight. The market generally expects the interest rate to remain unchanged in the 4.25%-4.50% range (probability 95.9%), but the wording of the resolution statement and Powell's speech will signal future policy directions, especially regarding the adjustment of **September rate cut expectations (current market estimates a 61.9% probability of a rate cut in September)**. This decision will not only affect the U.S. dollar and U.S. stocks but will also transmit through liquidity expectations and market sentiment to the cryptocurrency market. We need to focus on the following fourfold logic:
I. Three Major Contradictions in Fed Decision-Making
1. Inflation Stickiness vs Economic Slowdown
The core PCE inflation rate in the U.S. reached 3.1% in June (above the 2% target), but the GDP growth rate in the second quarter was only 1.4%, and the unemployment rate rose to 4.5%. The Fed needs to balance between “containing inflation” and “preventing recession”—if Powell emphasizes that “inflation risks remain,” it may delay rate cut expectations; if he mentions “economic downward pressure,” it could pave the way for a rate cut in September.
2. Internal Divisions vs Political Pressure
Internal hawk-dove battles at the Fed are intensifying: 2 out of 7 board members have publicly supported a rate cut, while Trump has recently pressured officials by inspecting the Fed building. If there are **1-2 votes against maintaining interest rates** (like Waller or Bowman), it may trigger market speculation about a policy shift.
3. Tariff Effects vs Geopolitical Risks
Trump's 10% tariffs on imported goods have been in effect for 3 months, and their transmission effects on consumption have not fully emerged. Coupled with rising oil prices due to conflicts in the Middle East, the Fed needs to assess the risk of “tariff-induced inflation,” which could constrain the space for rate cuts.
II. Potential Reaction Paths of the Cryptocurrency Market
Scenario 1: Dovish Signals Strengthen (e.g., hinting at a September rate cut)
- Dollar under pressure: The dollar index may dip to the 97 level, with funds shifting from U.S. treasuries to risk assets.
- Bitcoin Short-term Surge: Historical data shows that after the Fed begins a rate cut cycle, Bitcoin's average increase in the following three months is 42% (e.g., after the September 2024 rate cut, Bitcoin rose from $59,000 to $64,000). If Powell signals “data allows for accelerating rate cuts,” Bitcoin may break the $120,000 resistance.
- Altcoin Rotation Accelerates: Low market cap public chain coins like CFX and SOL may replicate the “altcoin season” surge logic (e.g., CFX’s 20x rise in three months due to capital speculation).
Scenario 2: Hawkish Stance Dominates (e.g., delaying rate cut expectations)
- Dollar Strengthens: The dollar index may rebound above 98, leading to pressure on U.S. tech stocks (e.g., the Nasdaq index may correct by 3%-5%).
- Bitcoin Tests $110,000 Support: If Powell emphasizes “no rate cuts until inflation reaches the target,” market risk appetite may decline, and Bitcoin may retest $110,000 (the low on July 25), with short-term volatility potentially soaring above 50%.
- Stablecoin Demand Surges: The USDT premium rate may rise from the current 0.1% to 0.5%, with funds pouring into stablecoins for safety.
Scenario 3: Neutral Statements + Policy Ambiguity
- Market Volatility Intensifies: Bitcoin may fluctuate widely in the $115,000-$120,000 range, with the options market “fear index” (DVOL) potentially rising above 80.
- On-chain Capital Divergence: On-chain data shows that institutions are gradually increasing their Bitcoin holdings (e.g., BlackRock increased by 47,000 coins in June), while the retail holding ratio has dropped to 10.2%, necessitating caution regarding the tug-of-war between bulls and bears.
III. Three Layers of Response Strategies for Crypto Investors
1. Short-term Trading: Utilize Volatility Arbitrage
- Options Strategy: Buy call options with a strike price of $115,000 (premium rate about 5%) to hedge against the risk of falling below $110,000.
- Leverage Control: Position size should not exceed 20% of total funds, with a 1% stop-loss line (if the current price of Bitcoin is $118,000, set the stop-loss at $116,800).
- Altcoin Rotation: If Bitcoin breaks above $120,000, consider chasing recently active tokens (like ORDI, SATS), but take profits within 24 hours.
2. Mid-term Layout: Anchor on Policy Expectations
- ETF Fund Flows: Pay attention to inflows into Bitcoin spot ETFs (e.g., Grayscale GBTC premium rate narrowing from -20% to -12%, indicating institutional confidence recovery).
- Compliant Asset Allocation: Allocate to regulated stablecoins like USDC (market cap $61.5 billion, accounting for 24.6% of the stablecoin market) to cope with policy uncertainties.
- Cross-chain Hedging: Convert 30% of Bitcoin holdings to Layer 2 tokens like Polygon (MATIC) to hedge against Ethereum Layer 1 network congestion risks.
3. Long-term Logic: Bet on Policy Easing
- Regulatory Dividend: The Trump administration may promote the (Stablecoin National Innovation Act), and holding compliant stablecoins like USDC could yield excess returns.
- Technical Narrative: If the Fed hints at “progress in digital currency research,” consider investing in central bank digital currency (CBDC) concept stocks (like Ripple's RLUSD).
- Macro Hedging: Allocate a combination of gold (XAU) and Bitcoin (ratio 7:3) to diversify dollar credit risk (U.S. federal debt has reached $36 trillion, accounting for 130% of GDP).
IV. Risk Warnings and Key Observation Points
- Data Risk: Pay attention to adjustments in the predictions for **2025 GDP growth** and **core PCE inflation** in the resolution. If inflation expectations are raised to above 3.2%, it may trigger market panic.
- Liquidity Risk: The Fed's balance sheet reduction is ongoing (at $95 billion per month). If the decision does not mention a slowdown, it may worsen selling pressure in the cryptocurrency market.
- Geopolitical Black Swans: Escalation of conflicts in the Middle East or tensions in the Taiwan Strait may trigger “safe-haven” buying in “gold + bitcoin,” but extreme situations could lead to liquidity exhaustion.
🔥 Immediate Action Suggestions:
- One hour before the announcement (23:00-24:00): Close short-term contracts and maintain 50% position for observation.
- Within 30 minutes after the announcement:
- If Bitcoin rises more than 3% in 15 minutes, increase position to 70%, targeting $122,000;
- If it falls more than 2%, increase position to 60%, targeting $112,000.
- During Powell's speech (2:30-3:00): Focus on keywords like “rate cut timing” and “stablecoin regulation.” If “digital dollar pilot” is mentioned, quickly buy USDC-related assets.
Tonight’s Fed decision is a key turning point for the cryptocurrency market in the second half of the year. Regardless of the outcome, increased volatility and capital rotation will become the norm. Investors are advised to follow the principle of “light positions for trial and strict stop-losses,” while also focusing on the preliminary signals from August non-farm payroll data and the September FOMC meeting, to seize structural opportunities in policy games. Remember: in the “policy market” of cryptocurrencies, expectation differences are often more important than the facts themselves.
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