No interest rate cut in sight + "good news exhausted," will BTC test the market bottom again?

Original Author: Ma He, Foresight News

On May 18th, Bitcoin continued its decline, falling below $77,000, marking its fourth consecutive daily loss. Ethereum also dropped to around $2,100, while mainstream cryptocurrencies like Solana and XRP saw broad declines. Data from Coinglass shows that total liquidations across the network reached $657 million within 24 hours, with long position liquidations accounting for $584 million.

Most of these liquidated positions were long bets established above $80,000. Once the price broke through this psychological level, algorithmic trading systems and institutional risk control protocols automatically triggered sell-offs, forming a classic liquidity spiral. According to CoinMarketCap data, the Crypto Fear & Greed Index fell back to 39 today, indicating market sentiment has turned to fear.

On the macro front, conditions are equally unkind to the crypto market. The U.S. 10-year Treasury yield remains around 4.43%, S&P 500 futures are down 0.19%, and Nasdaq 100 futures are down 0.29%. The Dow Jones Industrial Average fell 0.29%. Most of the "Magnificent Seven" tech stocks have reported Q1 earnings, with many exceeding expectations (especially regarding strong AI-related revenue). Nvidia's earnings report is scheduled for release after the market close on Wednesday, May 20th.

Geopolitical tensions in the Middle East—particularly the risk of a blockade in the Strait of Hormuz—are pushing energy prices to new highs. According to Bitget data, Brent crude oil has risen to $112.9. The risk correlation between traditional markets and the crypto market has been vividly demonstrated this week: as expectations of tighter dollar liquidity increase, Bitcoin's nature as a high-risk asset is amplified, overriding its 'digital gold' safe-haven narrative.

Rate Cuts Ruled Out

The core macro driver behind this downturn is a complete reassessment of expectations for the Federal Reserve's monetary policy. At the FOMC meeting concluding on May 1st, the Federal Open Market Committee voted 10-2 to maintain the federal funds rate target range at 3.50% to 3.75%. More critically, this was the meeting with the most dissenting votes since October 1992—three regional Fed presidents publicly opposed the implicit 'easing bias' in the post-meeting statement.

Neel Kashkari

Minneapolis Fed President Neel Kashkari, a 2026 FOMC voter, was the most representative voice. In a May 3rd interview on CBS's *Face the Nation*, Kashkari clearly stated that, due to the energy price shock from the war with Iran, "We all need to have an open mind about the path of interest rates. If things deteriorate, we might need to move in the opposite direction"—meaning rate hikes, not cuts. He specifically noted that the longer the Strait of Hormuz remains closed, the greater the imported inflationary pressure on the U.S., and the Fed must defend the credibility of its 2% inflation target.

Jeffrey Gundlach, CEO of DoubleLine Capital, clearly stated that the possibility of the Fed cutting rates this year has essentially vanished. Stubborn inflation and signals from the interest rate market have jointly blocked the path for monetary easing.

On May 18th, according to Bloomberg, in an interview on Fox News' *Sunday Morning Futures*, Gundlach pointed out that the market previously expected two rate cuts this year, but inflation data has consistently failed to cooperate. He stated bluntly, "With the 2-year Treasury yield nearly 50 basis points higher than the federal funds rate, a rate cut is simply impossible in my view."

Earlier, the U.S. April CPI jumped 3.8% year-over-year, the fastest pace since May 2023. Gundlach warned that the next CPI reading will "start with a 4".

Meanwhile, the war with Iran is driving oil prices significantly higher, further transmitting into U.S. inflation data, exacerbating an already difficult price pressure situation. Gundlach also issued warnings about multiple market risks, including overvalued equities and private credit risks, suggesting overall market risks are quietly accumulating.

Additionally, Israeli media reported on May 17th that Israeli Prime Minister Benjamin Netanyahu and U.S. President Donald Trump spoke by phone that day to discuss the possibility of resuming military action against Iran. The call lasted about half an hour, focusing on the possibility of resuming military strikes against Iran. An official stated that if the U.S. decides to resume military action against Iran, the two nations are expected to launch joint airstrikes.

According to the latest Kalshi data, the market probability of the Fed holding rates steady this year has risen to 66.9%, while the probability of a single rate cut has fallen to 17.8%.

For the crypto market, this may signify the formal end of the 'rate cut narrative' that has persisted for over two years.

Historically, every major Bitcoin uptrend has been accompanied by Fed balance sheet expansion or a decline in real interest rates. With this liquidity engine stalled, BTC bulls have lost their most reliable macro moat.

CLARITY Act Passes Committee, a 'Sell the News' Event

In the early hours of May 15th Beijing time, the U.S. Senate Banking Committee voted 15-9 to advance the CLARITY Act, marking the first legislative draft in U.S. history to establish a comprehensive regulatory framework for digital assets. The bill clearly delineates jurisdiction between the SEC (for token offerings) and the CFTC (for secondary market trading), ending the years-long era of 'regulation by enforcement'. Major industry players like Coinbase and Circle have expressed support for the compromise provisions in the bill concerning stablecoin yields.

However, the market's reaction was a textbook example of "buy the rumor, sell the news." Before the bill cleared the committee, BTC briefly rose to $82,000. But once it passed, the price rapidly fell to $78,000.

Subsequently, it suffered four consecutive daily declines, briefly dropping to $76,735.

Before the bill's passage, regulatory clarity had already been priced in. Furthermore, provisions within the bill text concerning DeFi developer liability, stablecoin yield limits, and anti-money laundering standards actually increase compliance costs.

From a sentiment indicator perspective, this 'selling into strength' behavior has been fully validated.

Santiment posted that following the news of the Senate Banking Committee advancing the CLARITY Act, Bitcoin generated a wave of euphoria on social media. This brings BTC and crypto one step closer to final passage. Historically, when bullish comments outpace bearish ones by a ratio of 1.55 to 1, caution is advised. Market trends often move opposite to mass expectations.

Santiment believes that any move advancing the CLARITY Act should, long-term, be considered positive for crypto, as it could eventually lead to clearer rules for the U.S. crypto industry. However, don't be surprised if the market value of many top-cap cryptocurrencies remains "priced in" within a certain range before the CLARITY Act is formally enacted.

Institutions Using Rallies as Exit Opportunities

On May 14th, Glassnode indicated that the 7-day simple moving average of net inflows into U.S. spot Bitcoin ETFs fell to -$88 million per day, the largest outflow since mid-February. The outflows in February occurred amidst price weakness. This wave of selling pressure occurred during price strength, with BTC trading near $80,000.

Institutional participants used the recent days' rallies as exit opportunities, rather than reacting out of fear.

According to SoSoValue data, since May 7th, Bitcoin spot ETFs have seen net outflows amounting to hundreds of millions of dollars. Notably, on May 13th, a single-day net outflow of $635.23 million was recorded, the highest single-day net outflow in months.

With continuous capital outflows, upward momentum for Bitcoin's price remains weak.

Outlook for Subsequent Market Movement

BitMEX co-founder Arthur Hayes stated a few days ago that he expects dollar and yuan liquidity to continue rising, benefiting Bitcoin and cryptocurrencies. He believes Bitcoin bottomed around $60,000 earlier this year and, fueled by the tailwind of trillions of dollars and yuan about to be created, retaking $126,000 is a foregone conclusion. Many detractors will refuse to participate in this Bitcoin rally because it has significantly lagged behind tech stocks and gold over the past 24 months. Many fail to understand Bitcoin's relevance as a hedge against rampant money printing. However, it will demonstrate its sensitivity to fiat liquidity expansion.

Hayes predicts the rally will accelerate. After Bitcoin breaks $90,000, many bearish option sellers will rush to cover their positions, making the price trajectory explosive. He admits he has no idea how high Bitcoin can go, but will push the Maelstrom portfolio to maximum risk unless any drastic changes occur.

MicroStrategy founder Michael Saylor opted for a simpler expression. On May 17th, he again posted information related to the Bitcoin Tracker.

Weiss Crypto analyst Juan M. Villaverde stated that he does not believe BTC will drop significantly from current levels but will experience a moderate pullback, with the $70,000 support level likely holding. He suggests a notable low could appear before the end of July this year.