Capital inflow accelerates as Bitcoin enters high-level fluctuations.

Structural risks are lurking; the market may enter a high-level fluctuation period

Macroeconomic conditions are warming: Moody's downgrade, tariffs, and tax reduction bills trigger market fluctuations, leading to a surge in gold.

Capital momentum: inflow of stablecoins and related funds, strong new buying pressure, but market risk aversion sentiment is increasing, sustainability needs to be observed.

Price and momentum divergence: Bitcoin rises, capital, off-exchange premiums, and related funds are heating up simultaneously, while the risk of a pullback increases.

Strategy suggestion: Focus on defense, pay attention to the Bitcoin support level at $103,000, and observe the price trends of Ethereum/Bitcoin and Solana/Bitcoin.

1. Macro and Market Environment

Moody's downgrade, tariffs, and tax reduction bills have pushed up U.S. Treasury yields, causing fluctuations in the stock and cryptocurrency markets.

The stock market may pull back, tech stocks are under pressure, while the financial and defense sectors are relatively resilient; cryptocurrencies may drop towards support levels, and attention should be paid to signals of the Federal Reserve's easing.

Fiscal stimulus and interest rate cuts are beneficial for the stock market and cryptocurrencies, but caution is needed regarding the risk of expanding deficits and the status of the dollar.

If the Federal Reserve is loose and the dollar hegemony is solid, the market will continue to rise; otherwise, it is necessary to increase non-dollar asset allocation.

Strategy: Increase holdings in mainstream cryptocurrencies and dynamically adjust global asset allocation.

2. Capital Flow Analysis & Mainstream Coin Market Structure

External Capital Flow

• Related fund inflows: This week, $2.8 billion flowed in, a significant increase in inflow.
• Stablecoins: This week, an additional $2.3 billion was issued, with an average daily issuance of $321 million, which is at a relatively high level.

Market Sentiment Indicator

• Off-exchange premium: The premium on stablecoins has continued to rise.

Bitcoin (BTC)

• Technical Analysis: The market is in a volatile upward range.
• On-chain chip distribution: Chips above $103,000 are reinforced.

Ethereum (ETH)

The trend is weaker than Bitcoin, and ETH/BTC maintains a consolidation, with funds continuing to flow back to BTC dominance.

On-chain changes: An increase in active addresses may indicate the completion of a phase of bottoming out.

Macroeconomic Review

Moody's Downgrade Impact on the Market

Background:

On May 16, 2025, Moody's downgraded the U.S. credit rating from Aaa to Aa1, citing a surge in debt (36 trillion dollars, accounting for 122% of GDP) and high interest expenses (accounting for 3% of GDP). This marks the loss of the AAA rating from the three major rating agencies after S&P's downgrade in 2011 and Fitch's in 2023. The downgrade, combined with tariffs and tax reduction legislation (the coordination bill, expected to add 3.3 trillion dollars to the deficit), is likely to exacerbate volatility in the U.S. Treasury market in the short term.

Historical Review:

• 2011: Risk aversion drives up demand for U.S. Treasuries, with the 10-year yield falling to 1.7%.
• 2023: Increased bond issuance led to selling pressure, and yields rose to 4.9%, followed by fluctuations.
• 2025: Similar to 2023, downgrades and policy uncertainty push up yields (30-year has broken 5%), short-term selling pressure continues.

Supply Side:

• Low maturity pressure: The peak of U.S. Treasury maturities in May-June is mostly short-term Treasury bills (accounting for 80%), with a 4% yield attracting buyers and minimal extension risk.
• Pressure of Bond Issuance: The coordination bill will expand bond issuance, increase supply, and yields may rise further.

Demand Side:

• Short term: The Federal Reserve's interest rate cuts (saving about $90 billion in interest for every 25 basis points) and halting balance sheet reduction could boost demand and lower yields.
• Long-term: The demand for U.S. Treasury bonds relies on the hegemony of the U.S. dollar, and it is necessary to maintain the international status of the dollar to ensure rigid buying.

Impact on the Stock Market and Bitcoin

Short-term impact (until July 2025)

1. Stock Market

• Market volatility intensifies: Moody's downgrade exacerbates concerns about the sustainability of U.S. fiscal policy, combined with uncertainties surrounding tariff policies (10% tariffs on China, Canada, Mexico, and globally) and tax reduction bills, which may trigger a rise in risk-averse sentiment. The increase in U.S. Treasury supply due to the raising of the debt ceiling pushes up yields (30-year yields have exceeded 5%), raising corporate financing costs.
• Sector differentiation:

Squeezed sectors: Technology stocks and high-valuation growth stocks are sensitive to interest rates, and rising yields will depress valuations (such as FAANG stocks with high price-to-earnings ratios). Consumer goods and retail may be pressured due to tariffs raising costs.

Beneficiary sectors: The financial sector (such as banks and insurance companies) benefits from a high interest rate environment, while the defense and energy sectors may perform strongly due to increased spending from coordination bills.

• Federal Reserve signals: If the Fed releases signals of interest rate cuts or stops tapering in July, it may alleviate market pressures and boost the stock market, especially small-cap stocks (Russell 2000 Index).

Strategy:

• Reduce holdings in overvalued tech stocks and pay attention to the financial, defense, and energy sectors.
• Dynamically monitor the Federal Reserve's policy signals and be prepared to seize rebound opportunities under the expectation of interest rate cuts.
• Allocate defensive assets (such as consumer staples ETFs or gold) to hedge against volatility.

2. Cryptocurrency

• Interest Rate Pressure: Rising U.S. Treasury yields decrease the attractiveness of non-yielding assets (such as cryptocurrencies), and funds may flow into high-yield Treasury bills (4% yield).
• Potential benefits: If the Federal Reserve hints at interest rate cuts in July, the crypto market may rebound in advance due to the positive outlook for risk assets. Decentralized finance (DeFi) projects may attract some funds due to safe-haven demand.

Strategy:

• If the Federal Reserve signals easing, consider increasing holdings of mainstream cryptocurrencies (such as BTC, ETH) or DeFi tokens.

2. Long-term Impact (After 2025)

1. Stock Market

• Fiscal policy driven: The $3.8 trillion tax cut and $200 billion defense/border spending in the coordinating bill will stimulate economic growth and benefit the overall performance of the stock market. If tariff revenue (expected to be $2.7 trillion) effectively offsets the deficit, market concerns about fiscal deterioration will ease, supporting the continuation of the bull market.
• Interest Rates and Valuations: The Federal Reserve's interest rate cuts (saving $90 billion in interest expenses for every 25 basis points) can lower corporate financing costs and boost high-growth sectors (such as technology and clean energy). However, if the deficit continues to widen and the Federal Reserve maintains high interest rates, valuation pressures will limit upside potential.
• Impact of Dollar Hegemony: The long-term performance of the stock market relies on the international status of the dollar. If the dollar's hegemony is solid (through current account surpluses and financial account recoveries), foreign capital inflows will support the stock market; if the dollar's status wavers, capital outflows may drag down the market.

2. Cryptocurrency

• Loose monetary policy benefits: If the Federal Reserve continues to cut interest rates and stops tapering, the increase in liquidity will drive up cryptocurrency prices, similar to the bull market of 2020-2021 (Bitcoin rose from $10,000 to $69,000). In the long term, Bitcoin may break through $150,000.
• Regulation and Adoption: A friendly attitude from the government towards cryptocurrencies (such as support for Bitcoin reserves) could drive institutional adoption and benefit the market. However, if fiscal deterioration leads to a crisis of confidence in the dollar, cryptocurrencies may attract capital inflows as a safe-haven asset.
• Risk Factors: If the Federal Reserve delays interest rate cuts or the dominance of the US dollar is challenged, the cryptocurrency market may experience increased volatility due to a decline in risk appetite.

Strategy:

• Hold mainstream cryptocurrencies (such as BTC, ETH) for the long term, and pay attention to on-chain data (such as active addresses, transaction volume) to determine trends.
• Diversify investments into potential projects (such as Layer 2 solutions, Web3) to avoid the risk of a single asset.
• If the status of the US dollar is shaken, increase Bitcoin allocation as a hedge.

2. On-chain Data Analysis

1. Changes in medium to short-term market data affecting the market this week

1.1 Stablecoin Fund Flow Situation

This week (from May 16 to May 26), the total amount of stablecoins slightly increased to 213.596 billion, with an issuance of 2.34 billion, showing a significant recovery compared to the previous period. The recovery period mainly comes from the latter half of this week. In relation to the total amount of stablecoins (213.596 billion), 2.34 billion represents an increase of about 1.1%, which is a relatively clear rebound. For altcoins, this is a positive marginal change. The issuance means that more "purchasing power ready to be投入加密市场" is being minted.

1.2 Relevant Fund Capital Flow Situation

This week, Bitcoin-related funds have seen a large inflow, with $2.8 billion coming in. This is a strong signal of capital, indicating that institutional investors are becoming bullish on Bitcoin again. The second-to-last column shows our estimated potential number of Bitcoins that could be purchased. Of course, this data is not accurate, just an estimate. Although this week is slightly below the 33,462 Bitcoins from the week of April 21, it is significantly higher than the previous weeks (especially last week's 5,849), indicating substantial buying activity, and the price trend is consistently aligned with the capital flow.

1.3 OTC Premium and Discount

This week, the OTC premiums for USDT and USDC have both slightly rebounded and returned to the 100% level, indicating a renewed demand for stablecoins in the market. Combined with stablecoin data, not only does the on-chain data show optimistic performance, but there is also a slight warming trend in off-chain capital inflows.

1.4 A company purchases

In the chart, during this round of increase (starting from April 14), a certain company purchased 48,045 bitcoins, spending approximately 4.5469 billion USD. By combining the above stablecoin data and related fund data, we can see that the company's purchases have indeed become an important funding driver for this round of increase. Moreover, the frequency of purchases since the relative high last year has significantly increased compared to 2023-2024. Currently, the company's cost has risen to 69,726 USD, close to the low point in April. From an analytical perspective, the company has already become an important force influencing the market, and there is a need to strengthen the monitoring of relevant data in the future.

1.5 Exchange Balance

In the second half of this round of price increases, when the price reached 95,000, the market saw a situation where both Bitcoin and Ethereum were continuously withdrawn from exchanges, indicating that investors were unwilling to sell. Especially for Ethereum, after a short squeeze increase (to 2,500), funds quickly exited exchanges, demonstrating a strong "locking intention" and showing that investors were regaining confidence, which in fact also supported the important driving force behind the latter half of this round of increases. However, it's important to note that currently, the rate of balance reduction has slowed down, and close attention should be paid to whether the liquidity of the exchanges will continue to be squeezed.

2. Changes in medium-term market data affecting the market this week

2.1 Token Holding Address Proportion and URPD

The change in the proportion of coin-holding addresses this week is not particularly significant, especially as addresses holding between 100-1K coins have not shown a noticeable increase. The URPD presents a relatively healthy bar structure, and from these two data points, there is no indication of any unusual movements.

From a data perspective, both the funding and on-chain data this week performed quite well, combined with a relatively smooth K-line trend. Overall, this phase can still be qualitatively classified as a strong state (unless there is a destructive adjustment next week). Even if there is an adjustment next week, it cannot be preemptively or presumptively assumed how deep the adjustment will be.

![Market Observation Weekly: Macroeconomic Disturbances Intensify Volatility, Capital Frenzy Difficult to Conceal Structural Risks](