1. Interpretation of the Federal Reserve's Interest Rate Meeting: Policy Stability, Market Expectation Adjustment

The Federal Reserve decided to maintain the federal funds rate target range at 4.25%-4.50% in its latest interest rate meeting. This decision aligns with market expectations, but its policy wording, economic forecasts, and guidance on future interest rate paths have had a profound impact on the market. This meeting not only revealed the Federal Reserve's latest assessment of the current economic environment but also influenced the market's expectations for future liquidity conditions, directly affecting global asset markets, including cryptocurrencies. Below, we will provide a detailed interpretation from two aspects: the core content of the Federal Reserve's decision and its direct impact on the market.

1.1. Core Content of the Federal Reserve's Decision: Maintaining Policy Stability but Releasing Easing Signals

In this meeting, the Federal Reserve decided to keep the benchmark interest rate unchanged and emphasized in its post-meeting statement that "the policy stance remains restrictive to ensure inflation returns to the 2% target." This statement indicates that the Federal Reserve still believes the current level of inflation is insufficient to support an immediate rate cut. However, compared to previous meetings, the wording of this decision has softened. For example, in earlier meeting statements, the Federal Reserve repeatedly emphasized the "need for a longer period of restrictive policy," but in this meeting, this expression was weakened, shifting to emphasize that future decisions will be adjusted based on economic data. This change was interpreted by the market as the Federal Reserve preparing for a future policy shift.

Additionally, the Federal Reserve slightly lowered its GDP growth forecast in its latest economic projections while raising its inflation expectations for the coming years. This shows that policymakers are weighing the contradiction between economic slowdown and sticky inflation. For instance, the Federal Reserve expects the U.S. GDP growth rate in 2025 to be revised down from the previous forecast of 2.1% to 1.8%, while the core PCE (the inflation indicator favored by the Federal Reserve) is raised from 2.2% to 2.4%. This adjustment reflects the Federal Reserve's cautious attitude towards the future economic situation: although economic growth is slowing, inflation remains somewhat sticky, thus no hasty rate cuts are expected in the short term.

Another key point of interest is the Federal Reserve's balance sheet policy. Since starting the balance sheet reduction in June 2022, the Federal Reserve has been reducing up to $60 billion in Treasury securities and $35 billion in MBS (mortgage-backed securities) each month. In this meeting, the Federal Reserve announced that the pace of balance sheet reduction will decrease from $60 billion to $50 billion. Although this adjustment is not large, it signals that the liquidity tightening cycle is about to slow down. The Federal Reserve's balance sheet reduction is an important factor affecting market liquidity, as it directly determines the supply of dollars in the market. Over the past two years, due to the Federal Reserve's tightening policies, a large amount of liquidity has been withdrawn from the market, putting pressure on both the U.S. stock market and the cryptocurrency market. The slowdown in the pace of balance sheet reduction suggests that the Federal Reserve may be preparing for future liquidity easing.

The dot plot is one of the important tools for the market to interpret the Federal Reserve's policy direction. In this meeting, the dot plot indicated that the median interest rate expectation of FOMC members for 2025 is 3.75%, implying at least two rate cuts. Although this expectation is largely consistent with previous market expectations, there are still discrepancies in the details. Some officials expect rate cuts to begin as early as the fourth quarter of 2024, while others believe cuts will not occur until mid-2025. This divergence indicates that there are still differing views within the Federal Reserve regarding the stickiness of inflation, which will lead to significant uncertainty in future policy paths.

Overall, although the Federal Reserve's decision in this meeting maintained interest rates, it released a series of easing signals: softened wording, slowed balance sheet reduction, lowered economic growth expectations, and the dot plot indicating a rate cut path. These factors combined have led the market to reassess the future monetary policy environment, directly impacting asset price trends.

1.2. Direct Impact of Federal Reserve Policy on the Market: Liquidity Turning Point Approaches, Risk Assets Welcome a Turning Point

The impact of the Federal Reserve's policy adjustments on the market can be analyzed from multiple dimensions, particularly the U.S. Dollar Index (DXY), U.S. Treasury yields, the stock market, and the cryptocurrency market. Following the announcement of this decision, the market's immediate reaction indicated that investors' expectations for liquidity improvement are strengthening, suggesting that high-risk assets like Bitcoin may enter a rebound cycle.

First, the U.S. Dollar Index (DXY) fell sharply. The Dollar Index is an important indicator of global capital flows. After the Federal Reserve hinted at a possible slowdown in tightening, the Dollar Index quickly retreated, posting the largest single-day decline since 2023. A weaker dollar typically means that global capital is more willing to flow into high-yield assets, which supports risk assets like U.S. stocks, gold, and Bitcoin. Over the past two years, due to the Federal Reserve's continuous rate hikes, the Dollar Index remained strong, leading to capital outflows from emerging markets and putting pressure on risk assets. Now, with the change in the Federal Reserve's policy tone, the market is beginning to expect that the strong dollar cycle may soon come to an end, which will benefit Bitcoin and other crypto assets by attracting more capital inflows.

Second, U.S. Treasury yields have declined, indicating a turning point in interest rate expectations. Changes in U.S. Treasury yields are often seen as the market's anticipation of future interest rate environments. After the Federal Reserve meeting, the 10-year U.S. Treasury yield fell from 4.3% to 4.1%, indicating that the market is beginning to price in the possibility of future rate cuts. For the stock and crypto markets, lower U.S. Treasury yields mean reduced funding costs, thereby enhancing the attractiveness of risk assets. Historical data shows that when U.S. Treasury yields decline, Bitcoin often performs strongly, as this indicates that the market's liquidity environment is improving.

In the U.S. stock market, particularly technology and growth stocks, there has been a strong rebound. The Federal Reserve's policy adjustments have had a particularly noticeable impact on tech stocks, as technology companies typically rely on lower financing costs, and the rising expectations for rate cuts have led investors to re-enter these stocks. The Nasdaq index surged more than 2% after the interest rate meeting, and the stock prices of growth companies like Tesla and Apple also rebounded. This trend is a positive signal for the crypto market, as the correlation between tech stocks and Bitcoin has been increasing in recent years, with both showing greater interconnectedness in capital flows.

The response from the crypto market was equally swift. Bitcoin's price surged over 5% shortly after the Federal Reserve's decision was announced, breaking through the key resistance level of $85,000. Mainstream cryptocurrencies like Ethereum also rose in tandem, reflecting the market's strengthening expectations for liquidity easing. If the Federal Reserve continues to release easing signals in the coming months, Bitcoin may enter a new upward trend, potentially breaking previous highs.

In summary, although the Federal Reserve's policy decision did not immediately adjust interest rates, the signals released have far-reaching implications for the market. The weakening dollar, declining U.S. Treasury yields, rising tech stocks, and Bitcoin's rebound all indicate that the market is gradually adjusting its expectations for liquidity. For investors, this suggests that the liquidity turning point may be approaching, and high-risk assets like Bitcoin may welcome a new upward cycle.

2. Macro Background of the Market: Liquidity Turning Point Has Arrived, Funds May Flow Back to Risk Assets

In the past two years, global financial markets have experienced an unprecedented liquidity tightening. The Federal Reserve began its rate hike cycle in March 2022 while simultaneously implementing large-scale balance sheet reduction (QT), causing a dramatic shift in the global funding environment. This policy led to a decline in dollar liquidity, increased capital costs, and significant corrections in risk asset prices. Bitcoin, as a high-risk and high-volatility asset class, faced severe market turbulence during this process. However, as the Federal Reserve slows its balance sheet reduction in 2024, the flow of market funds is undergoing subtle changes, and the liquidity turning point may have quietly arrived.

2.1. Recent Analysis of the Liquidity Environment: Market Fund Turning Point Emerges, Large Amounts of Off-Market Funds Await Entry

Against the backdrop of collective tightening by global central banks in 2022-2023, market funds have become conservative, severely suppressing the valuations of risk assets. However, several data indicators since 2024 indicate that the liquidity environment is changing. The Coinbase research team recently analyzed that Bitcoin may bottom out and rebound in the coming weeks, based on the following main reasons:

First, the pace of global liquidity tightening is slowing. Over the past two years, due to the rate hikes by major central banks such as the Federal Reserve and the European Central Bank, global financial markets have experienced severe capital outflows and deleveraging, putting pressure on both the stock and crypto markets. However, in the March 2024 interest rate meeting, the Federal Reserve clearly stated that the pace of balance sheet reduction will slow, and the dot plot indicates that there may be 2-3 rate cuts within the next 12 months. This means that the tightening force of restrictive monetary policy over the past two years is weakening, and market liquidity may improve.

Second, the correlation between the U.S. stock market and the crypto market has strengthened, with the crypto market becoming more sensitive to macro liquidity changes. The 90-day rolling correlation between Bitcoin and the U.S. stock market (especially the Nasdaq index) reached a high of 0.75 in 2024, indicating a significant increase in their interconnectedness. In other words, the performance of tech stocks increasingly impacts Bitcoin, and tech stocks are highly sensitive to interest rates. As the market adjusts to the Federal Reserve's future policies, tech stocks have begun to rebound, and this trend is likely to drive the prices of Bitcoin and other crypto assets upward.

Additionally, rising risk aversion among investors has led institutions to reduce their allocations to crypto assets, but the market structure remains healthy. In the second half of 2023, due to rapidly rising U.S. Treasury yields, the market's expectations for prolonged high interest rates caused most institutional investors to decrease their allocations to crypto assets. Hedge funds and traditional institutions have shifted funds to low-risk assets such as short-term U.S. Treasuries and money market funds, resulting in decreased liquidity and trading volume in the Bitcoin market. However, it is worth noting that there has been no systemic risk in the market, and the structure of the crypto market remains relatively healthy, with steady inflows into BTC spot ETFs, indicating that institutions are still looking for suitable entry opportunities.

The most critical point is that the total balance of the stablecoin market has grown to $229 billion, indicating that off-market funds are accumulating and waiting to enter. Historical data shows that the supply of stablecoins is closely related to the flow of funds into the crypto market. When the total market value of stablecoins increases, it often indicates that the crypto market is about to welcome new incremental funds. Currently, the total balances of USDT (Tether) and USDC have continued to grow since the end of 2023, showing that a large amount of capital is on the sidelines, and once the market trend is confirmed, this capital may quickly flow back into Bitcoin and other crypto assets.

In summary, although the crypto market is still affected by macroeconomic uncertainties, the pressure of global liquidity tightening is easing, and there remains a large amount of capital waiting to enter the market. If the Federal Reserve continues to release dovish signals in the coming months and global liquidity improves, the crypto market is likely to welcome a new rebound cycle.

2.2. Relationship Between Dollar Liquidity and the Crypto Market: Historical Data Reveals BTC Trend Patterns

From historical data, the degree of dollar liquidity tightening or easing is highly correlated with the performance of the Bitcoin market. Specifically, in low-interest-rate, loose monetary environments, Bitcoin often experiences significant increases, while in high-interest-rate, tightening policy environments, Bitcoin faces immense pressure. We can break this trend down into the following three phases:

Phase 1: 2017-2021 ------ Easing Cycle Drives BTC Bull Market

From 2017 to 2021, the Federal Reserve maintained low interest rates and a QE (quantitative easing) policy, leading to extremely abundant global market liquidity. During this phase, institutional investors' interest in risk assets surged, and Bitcoin experienced two bull markets:

• In 2017, BTC price rose from $1,000 to $20,000, an increase of over 20 times.
• In 2020-2021, the Federal Reserve implemented a zero interest rate + unlimited QE due to the pandemic, causing Bitcoin's price to skyrocket from $4,000 to $69,000, setting a historical high.

Phase 2: 2022-2023 ------ Tightening Policies Lead to BTC Crash

In 2022, the Federal Reserve aggressively raised interest rates (a total of 11 hikes, increasing rates from 0.25% to 5.5%) while simultaneously implementing large-scale balance sheet reduction, leading to global liquidity tightening. Bitcoin, as a high-volatility asset, faced significant corrections during this period, with an annual decline of over 60%. Institutional investors withdrew, and market trading volume dropped sharply.

Phase 3: 2024-2025 ------ Balance Sheet Reduction Slows, BTC Welcomes Recovery

As the Federal Reserve slows its balance sheet reduction in 2024, market liquidity is showing signs of improvement. Historical experience indicates that when liquidity pressure eases, BTC tends to enter a new upward cycle as market funds flow back. If the Federal Reserve begins to cut rates or adopts more accommodative policies before 2025, Bitcoin may experience a bull market driven by the recovery of liquidity.

Currently, the Federal Reserve is at a critical stage of policy shift. Although it has not yet entered a rate-cutting cycle, signals such as slowed balance sheet reduction, a falling dollar index, and increasing stablecoin balances all indicate that the liquidity turning point has emerged. If the Federal Reserve continues to release easing signals in the coming months, the crypto market is likely to attract more capital inflows, and Bitcoin, as a liquidity barometer among risk assets, will benefit first, welcoming a new upward trend.

3. Bitcoin Market Outlook: Possibility of Bottoming Out and Risk Factors

Recent price fluctuations in the Bitcoin market, the flow of institutional funds, and the macroeconomic environment all suggest that the market may be in a bottoming phase and is likely to rebound against the backdrop of improving liquidity. However, investors still need to be vigilant about the uncertainties present in the market, including the direction of Federal Reserve policy, geopolitical risks, and potential internal risks within the crypto market.

3.1. Short-Term Price Trend Analysis of Bitcoin: Strengthening Bottoming Signals, Technical Indicators Show Rebound Potential

From a technical analysis perspective, recent market trends for Bitcoin show signs of strengthening bottom support, with multiple technical indicators suggesting that the market may be approaching a turning point.

First, key support levels of $76,000 - $80,000 are forming a market bottom.

In recent weeks, Bitcoin's price has tested the $76,000 - $80,000 range multiple times but has not effectively broken below it, indicating strong buying support in this area. Historical data shows that this range is also the cost area for a large amount of BTC spot ETF funds entering the market, and the involvement of institutional funds has reinforced the support. Additionally, on-chain data analysis shows that there is a significant accumulation of UTXOs (unspent transaction outputs) from long-term holders in this range, indicating strong confidence among holders and no large-scale panic selling.

Second, the RSI (Relative Strength Index) is rebounding, indicating a recovery in market momentum.

The RSI is typically used to measure whether the market is overbought or oversold. When the RSI is below 30, the market is considered oversold, suggesting a potential bottoming rebound. Recently, Bitcoin's RSI has rebounded from around 30 to the 45-50 range, indicating that market momentum is recovering and bullish strength is gradually increasing. Furthermore, an RSI rebound usually accompanies a gradual stabilization in price, showing that market buying pressure is strengthening.

Third, trading volume is gradually increasing, indicating a recovery in market liquidity. In a bottoming phase, changes in trading volume are crucial. Recently, the trading volume of Bitcoin in the key support area has increased, indicating that market buying is entering rather than purely selling. In the past few weeks of low-level fluctuations, Bitcoin's trading volume has gradually risen, suggesting signs of capital inflow. Once market sentiment turns optimistic, incremental funds may accelerate Bitcoin's exit from the fluctuation range.

In summary, if the Federal Reserve maintains its current monetary policy and market liquidity continues to improve, Bitcoin may maintain a fluctuating bottoming structure in the short term and welcome a rebound in the second quarter.

3.2. Market Movements of Institutional Investors: Fund Inflows Strengthen Market Support

The movements of institutional investors play a crucial role in the medium- to long-term trends of the Bitcoin market. In recent years, with the introduction of Bitcoin spot ETFs, more traditional financial institutions have participated in the Bitcoin market, and their fund flows have become an important barometer of market sentiment.

First, Grayscale's BTC holdings remain stable, with no large-scale selling. Grayscale, as one of the largest Bitcoin trust funds globally, is viewed as an important indicator of the market. In the first quarter of 2024, Grayscale's BTC holdings remained stable, with no significant capital outflows, indicating that institutional investors have not panicked and sold off due to short-term market fluctuations. In contrast, in previous years, during extreme market volatility, Grayscale's capital outflows typically exacerbated Bitcoin's price declines, whereas in this round of adjustments, the stability of Grayscale's holdings has increased, indicating that institutional investors still have confidence in BTC's long-term value.

Second, the fund flows of Bitcoin spot ETFs show that institutions are increasing their BTC holdings. Bitcoin spot ETFs are one of the most important channels for capital inflows into the market in 2024. Institutional investors are still accumulating BTC on dips. This contrasts sharply with the large-scale capital outflows during the Federal Reserve's tightening cycle in 2022-2023. The continuous inflow of ETF funds not only provides market buying support but also enhances confidence in BTC's long-term trend.

Third, MicroStrategy continues to increase its BTC holdings, showing that institutions maintain confidence in long-term value. MicroStrategy, as one of the largest corporate BTC holders globally, has recently increased its BTC holdings again, with total holdings exceeding 214,000 BTC. This indicates that despite significant short-term market fluctuations, some institutional investors are still willing to hold BTC for the long term and view it as an important asset allocation tool. MicroStrategy's accumulation not only boosts market confidence but also sends a signal to other institutions about BTC's long-term investment value.

Overall, the continuous inflow of institutional funds provides strong medium- to long-term support for BTC prices and enhances the market's rebound momentum.

3.3. Possible Market Risks: Uncertainties Remain, Need to Be Vigilant Against Sudden Shocks

Although the market is showing signs of bottoming out and rebounding, several risk factors may affect Bitcoin's short-term trends.

First, uncertainty in Federal Reserve policy. Although the market generally expects the Federal Reserve to cut rates in the second half of 2024, if inflation data rebounds, the Federal Reserve may delay rate cuts or even tighten liquidity further. For example, if future CPI (Consumer Price Index) data rises unexpectedly, the Federal Reserve may revert to a hawkish stance, leading to deteriorating market sentiment and putting pressure on risk assets. In this scenario, Bitcoin may face further adjustment pressure.

Second, global geopolitical risks may affect investors' risk appetite. In recent years, geopolitical events have increasingly impacted financial markets. For instance, the Russia-Ukraine conflict, tensions in the Middle East, and instability in the Asia-Pacific region can all influence global investors' risk preferences. If market risk aversion rises, funds may flow into traditional safe-haven assets such as U.S. Treasuries and gold, while high-risk assets like Bitcoin may face short-term selling pressure.

Third, liquidity risks within the crypto market. In addition to macroeconomic factors, there may also be potential risks within the crypto market. For example, if certain exchanges experience liquidity issues or liquidation risks, it could trigger short-term volatility in the market. Additionally, if large institutional investors sell BTC due to liquidity needs, it could also impact the market. Therefore, investors should closely monitor on-chain data, fund flows from exchanges, and leverage conditions in the derivatives market to assess whether there are potential risks in the market.

Currently, the Bitcoin market is in a phase of strengthening bottom support, inflows from institutional funds, and improving liquidity conditions, with the market awaiting new catalysts to push prices beyond the fluctuation range. However, investors must remain vigilant about uncertainties in Federal Reserve policy, geopolitical risks, and liquidity risks within the crypto market, as these factors may influence short-term market trends.

Overall, if market liquidity continues to improve and institutional funds keep flowing in, Bitcoin is likely to welcome a rebound in the second quarter. However, until key resistance levels are effectively broken, the market may continue to fluctuate, and investors should closely monitor macroeconomic data, ETF fund flows, and market trading volume in the coming months to determine whether Bitcoin is entering a new upward cycle.

4. Investment Strategies and Conclusions

In the current market environment, investors should adjust their investment strategies based on different investment styles, risk tolerance, and understanding of the market. The Federal Reserve's continued policy stability, the gradual improvement of the liquidity environment, and the rebound signals in the Bitcoin market all present different opportunities and challenges for investors. To achieve better investment returns in this volatile market, investors must flexibly adjust their strategies and closely monitor changes in macroeconomic and market trends.

4.1. How Should Investors Respond to the Current Market?

Short-Term Traders' Strategy:

For short-term traders, the market is highly volatile, making technical analysis particularly crucial. In the short-term fluctuations of Bitcoin prices, the key support level of $80,000 is a very important reference point. If Bitcoin's price falls below this area, short-term traders should consider setting short-term stop-losses to avoid losses from further market declines. Meanwhile, once the market shows signs of stabilization, short-term traders can wait for Bitcoin's price to break through the $88,000 area and gain confirmation, at which point they can increase their positions to capitalize on subsequent price increases.

However, short-term trading carries higher risks, especially in a crypto market where liquidity is still not fully stable, so traders should strictly set stop-loss points to avoid excessive exposure. Technical signals in the market, especially when prices break through key resistance areas, can help short-term investors grasp short-term price fluctuation trends. Additionally, short-term traders should closely monitor the release of macroeconomic events, such as U.S. non-farm payroll data, CPI, and Federal Reserve policy meetings, as these factors can significantly impact market volatility.

Medium- to Long-Term Investors' Strategy:

For medium- to long-term investors, there remains significant upside potential in the current market, especially as the liquidity environment gradually improves. Compared to short-term traders, medium- to long-term investors can afford to be more patient in waiting for market rebound opportunities. Currently, Bitcoin prices may be in a relatively bottoming area, and the liquidity turning point has arrived. Medium- to long-term investors can accumulate assets in batches during price corrections, particularly near key support areas (such as the $88,000-$83,000 range), which will lay a solid foundation for future rebound trends.

As the Federal Reserve slows its balance sheet reduction and market liquidity gradually improves, medium- to long-term investors are likely to benefit in the upcoming rebound cycle. When accumulating positions, investors should pay attention to BTC's long-term trends and changes in market sentiment, and try to avoid the impact of short-term market sentiment fluctuations on investment decisions. As confidence in the Bitcoin market gradually recovers, medium- to long-term investors will achieve relatively stable returns.

Institutional Investors' Strategy:

Institutional investors typically have stronger capital strength and risk management capabilities, so their investment strategies often focus on accumulating long-term value and adopting relatively conservative operational methods. In the current market environment, institutional investors should closely monitor changes in Federal Reserve policy, especially potential signals of monetary easing in the future. If the Federal Reserve decides to increase monetary easing or cut rates, this will bring more capital inflows to risk assets, including Bitcoin.

At the same time, institutional investors may consider long-term holdings of Bitcoin and Ethereum to hedge against the risk of dollar depreciation. Bitcoin and Ethereum, as the two most liquid crypto assets, have gradually become key components of institutional asset allocation, and this trend may accelerate as the crypto market matures. By holding these crypto assets, institutional investors can not only gain substantial returns when prices rebound but also avoid potential risks in traditional financial assets, such as inflation and global market uncertainties.

4.2. Future Market Outlook

From the overall market performance perspective, as the Federal Reserve's policies stabilize and the liquidity environment improves, the likelihood of Bitcoin's short-term rebound and medium- to long-term upward movement is gradually increasing. Although the market still faces shocks from risk factors, particularly macroeconomic uncertainties, geopolitical risks, and potential liquidity issues within the crypto market, the expectations of easing Federal Reserve policies and the continuous inflow of institutional funds still bring new opportunities to the Bitcoin market.

First, the prospects for improving market liquidity are clear. As the Federal Reserve slows its balance sheet reduction, market liquidity is expected to gradually improve, especially in the short term, where a loose dollar stance may provide more capital inflows into risk assets. Historical trends of Bitcoin indicate that in a loose dollar liquidity environment, BTC often performs strongly. Therefore, in a favorable macroeconomic environment, Bitcoin is likely to rebound in the coming weeks, providing profit opportunities for investors.

Second, Bitcoin is expected to enter a new upward cycle. Supported by the liquidity environment, Bitcoin's price may break through the target area of $85,000 - $88,000, ushering in a new upward cycle. However, this process may also face technical fluctuations, and after breaking through key resistance levels, the market will still need to contend with fluctuations in capital allocation and market sentiment.

Third, market risks still exist. Although the market is expected to recover, investors should remain vigilant about potential adjustments in Federal Reserve policy and changes in the global economy. In particular, a resurgence in inflation or escalating international conflicts could lead the Federal Reserve to tighten monetary policy again, which would put pressure on risk assets like Bitcoin. Therefore, investors must stay alert, closely monitor dynamic changes in the market, and adjust their investment strategies promptly.

Overall, against the backdrop of stable Federal Reserve policies and gradually improving liquidity conditions, the Bitcoin market presents a relatively optimistic outlook. However, market volatility remains high, and investors should conduct reasonable asset allocation based on their risk tolerance and market trends.