Expectations of interest rate cuts in the US rise, Ethereum welcomes a milestone moment, and market sentiment gradually recovers.

The latest economic data released in the United States has eased market concerns. The market generally expects interest rate cuts to begin in September. As expected, the U.S. stock market is undergoing a style shift, with a decrease in concentration of large tech stocks, while small-cap stocks and non-tech sectors are performing actively. The cryptocurrency market was highly volatile in July due to emotional factors, but it has now stabilized. The Ethereum spot ETF has started trading, and Grayscale's selling pressure has temporarily impacted prices, but the selling speed is relatively fast, so the pressure may not last long.

On July 25, the United States announced a seasonally adjusted annualized GDP growth rate of 2.8% for the second quarter of 2024, exceeding the expected 2.0% (1.4% in the first quarter). The PCE price index grew by 2.6% in the second quarter, down from 3.4% in the first quarter. The closely watched core PCE price index rose by 2.9%, also lower than the previous value of 3.7%. However, the market reacted differently to this data. On the day the data was released, U.S. stocks experienced significant fluctuations, with intense clashes between bulls and bears throughout the day, making it difficult for the market to reach a consensus.

In fact, many investors question the authenticity of the U.S. official economic data. Clues can be seen from the revisions of the non-farm payroll data — the Labor Department announced the non-farm payroll data for this month as 206,000 at the beginning of the month, while significantly revising down the data for April and May. After the revisions, the total number of new jobs for these two months decreased by 111,000 compared to before the revisions. According to statistics, in the last 5 months, 4 months had their employment numbers revised down. This practice has led to market speculation that economic data may be used as a policy tool.

Long-term interest rate hikes have had a significant impact on the U.S. economy. The market generally speculates that many economic data may be "staging" to create justification for interest rate cuts. The effect is remarkable: current data shows that the probability of interest rate cuts starting in September is as high as 100%.

This extreme expectation indicates that the market has begun to adjust the pricing of various assets consistently. The yield on the US ten-year Treasury bonds is generally on a downward trend, as funds transition from the risk-averse sentiment of the rate hike cycle to the repricing of assets in the rate cut cycle.

Observing the recent trends of the Russell 2000 small-cap index (RUT) and the Nasdaq Composite Index (IXIC), it is evident that on July 11, when the IXIC peaked, it was also the day the RUT began to rise. On this day, the latest CPI data was released in the U.S., and the market quickly caught the signals of easing inflation, with a general belief that interest rate cuts could begin in September. Funds rapidly withdrew from large-cap stocks and started to flow into small-cap stocks. This "big to small" style shift aligns with the characteristics of increased market risk appetite during a rate-cutting cycle.

Currently, among the "Magnificent 7" in the US stock market, Tesla and Alphabet have released their second-quarter financial reports. Tesla's performance fell short of expectations, while Alphabet performed relatively well, but YouTube's ad revenue did not meet expectations. This has intensified market concerns about the overall profitability of tech giants. If only NVIDIA benefits from the AI boom while other companies perform mediocrely, the US stock market may face more adjustments. Attention should be paid to the subsequent performance of Apple, Microsoft, and NVIDIA; if they can exceed expectations, combined with the liquidity brought by interest rate cuts, the US stock market may still maintain its strength.

In July, the cryptocurrency market experienced significant fluctuations due to multiple factors. The price of Bitcoin fell to a low of below $54,000, then broke through $70,000, and by the end of the month, it dropped back to around $66,000. Recently, the Bitcoin volatility index reached a high level, reflecting that the market is in a stage where bulls and bears are evenly matched.

The compensation from Mt.Gox and the selling pressure from the German government were anticipated, with limited actual impact. The sharp decline at the beginning of the month was primarily due to emotional selling. Trump's speech at the industry conference temporarily boosted Bitcoin prices, but the market doubts the feasibility of his statements, leading to a subsequent price drop.

Ethereum market reaches an important milestone: On July 23, Eastern Time, coinciding with the tenth anniversary of Ethereum's first public sale, the Ethereum spot ETF began trading. However, market reaction has been tepid: over 100 million USD net inflow on the opening day, but a continued net outflow in the following days.

Grayscale products are continuously flowing out in large quantities, which is similar to the situation when the Bitcoin spot ETF was launched. Grayscale converted ETHE into an ETF but still maintains a high fee rate of 2.5%, far exceeding other competitors, leading to a large sell-off by investors. However, the selling pressure of ETFE is very quick, and the selling pressure may decrease rapidly. The speed of the launch of the Ethereum spot ETF proves that crypto assets are being rapidly accepted by traditional markets.

The entire market in July was mainly driven by emotions. The cryptocurrency market currently lacks a new bull market narrative, is decoupled from the performance of the US stock market, and is in a relatively chaotic period, making it more susceptible to emotional influences.

The market has basically digested the emotional impact, showing a spiral upward recovery trend. The price of Bitcoin is on the rise, with continuous net inflows into spot ETFs, reflecting that market panic has not persisted, indicating that a larger market movement may be on the horizon.

Despite uncertainties in the macro economy and traditional financial markets, the cryptocurrency asset market has demonstrated independence and resilience, and is expected to play a more important role in diversified investment portfolios. Although Bitcoin prices are volatile, the long-term trend remains unchanged. The launch of the Ethereum spot ETF has injected new vitality into the market. Although the future of the crypto market is filled with challenges, the outlook remains bright.