No rate cut in sight + good news fully priced in, will BTC test market bottom again?

Original Author: Ma He, Foresight News

On May 18, Bitcoin continued to fall below the $77,000 mark, marking its fourth consecutive daily decline. Ethereum also dropped to around $2,100, with mainstream coins such as Solana and XRP experiencing widespread losses. Coinglass data shows that total liquidations across the network reached $657 million in 24 hours, with long position liquidations accounting for $584 million of that total.

Most of these liquidated positions were long bets built above $80,000. Once the price broke through this psychological threshold, algorithmic trading systems and institutional risk control protocols automatically triggered selling, forming a classic liquidity spiral. According to CoinMarketCap data, the Fear and Greed Index fell back to 39 today, indicating panic in the market.

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

The situation in the Middle East—particularly the risk of a blockade in the Strait of Hormuz—is pushing energy prices to new highs. According to Bitget data, Brent crude oil has risen to $112.9. This week has seen a perfect demonstration of the risk linkage between traditional markets and the crypto market: when expectations of tight US dollar liquidity rise, Bitcoin's nature as a high-risk asset is magnified infinitely, overshadowing its role as a safe haven, or "digital gold."

No Hope for Fed Rate Cuts

The core macro driver behind this decline is a complete reassessment of expectations for the Federal Reserve's monetary policy. At the FOMC meeting that concluded on May 1, the Federal Open Market Committee voted 10 to 2 to keep the federal funds rate unchanged in the 3.50% to 3.75% range. More importantly, this meeting saw the most dissenting votes since October 1992, with three regional Fed presidents publicly opposing the implied "easing bias" in the post-meeting statement.

Neel Kashkari

Minneapolis Fed President Neel Kashkari represents one of the most significant dissenting voices. As a 2026 rotating voting member, Kashkari stated clearly in an interview on CBS's "Face the Nation" on May 3 that, due to the energy price shock caused by the war with Iran, "everyone needs to keep an open mind about the path of interest rates. If things get worse, we may need to move in the opposite direction"—meaning raising rates rather than cutting them. He specifically noted that the longer the Strait of Hormuz remains closed, the greater the imported inflationary pressure on the US, and the Fed must defend the credibility of its 2% inflation target.

Jeffrey Gundlach, CEO of DoubleLine Capital, explicitly stated that the possibility of the Fed cutting rates this year has virtually disappeared. Persistent inflation and signals from the interest rate market have jointly blocked the room for monetary easing.

On May 18, Bloomberg reported that in an interview on Fox News' "Sunday Morning Futures," Gundlach pointed out that while the market previously expected two rate cuts this year, inflation data has consistently failed to cooperate. He bluntly stated: "With the two-year Treasury yield nearly 50 basis points above the federal funds rate, I see no possibility of a rate cut."

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

Meanwhile, the war with Iran has driven oil prices sharply higher, further feeding into US inflation data and exacerbating an already tricky price pressure situation. Gundlach also issued warnings about multiple market risks, including high stock valuations and private credit risks, suggesting that overall market risk is quietly accumulating.

Furthermore, Israeli media reported on May 17 that Israeli Prime Minister Benjamin Netanyahu and US President Donald Trump spoke by phone that day to discuss the possibility of resuming military action against Iran. The call between Netanyahu and Trump lasted about 30 minutes, primarily discussing the possibility of resuming military strikes against Iran. The official stated that if the US resumes military action against Iran, it is expected that the US and Israel will launch joint airstrikes.

According to the latest data from Kalshi, the market's implied 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 signal the official demise of the "rate cut narrative" that has persisted for over two years.

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

CLARITY Act Passes Key Hurdle, But It's a "Buy the Rumor, Sell the News" Event

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

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

This was followed by four consecutive daily declines, with the price briefly hitting $76,735.

Before the bill's passage, the prospect of regulatory clarity was already priced in. Furthermore, provisions in the bill text concerning DeFi developer liability, limits on stablecoin yields, and anti-money laundering standards effectively increase compliance costs.

From a sentiment indicator perspective, this "selling into strength" behavior is well-validated. Santiment stated that after news of the Senate Banking Committee advancing the CLARITY Act, Bitcoin generated a wave of hype on social media. This brought BTC and crypto one step closer to final passage. Historically, when bullish comments about crypto market cap outnumber bearish comments by a ratio of 1.55 to 1, caution is advised. Market trends often move contrary to general public expectations.

Santiment believes any step that advances the CLARITY Act should be viewed as positive for crypto in the long term, as it could ultimately bring clearer rules to the US crypto industry. However, it also noted not to be surprised if the market value of many of the largest-cap assets has already been "priced in" to a certain range before the CLARITY Act officially takes effect.

Institutions Use the Rally as an Exit Opportunity

On May 14, Glassnode reported that the 7-day simple moving average of net inflows for US spot Bitcoin ETFs turned negative to -$88 million per day. This is the largest outflow since mid-February. The outflows in February occurred during a period of price weakness. However, this wave of selling pressure materialized during a period of price strength, with BTC trading near $80,000.

Institutional participants have used the rallies in recent days as an opportunity to exit, rather than reacting out of fear.

According to SoSoValue data, starting around May 7, US spot Bitcoin ETFs began seeing net outflows totaling hundreds of millions of dollars. On May 13 alone, net outflows reached $635.23 million, setting a new single-day outflow record in months.

With persistent capital outflows, Bitcoin's upward price momentum has been weak.

Outlook

Arthur Hayes, co-founder of BitMEX, stated in an article a few days ago that he expects US dollar and Chinese yuan liquidity to continue rising, which will benefit Bitcoin and cryptocurrencies. He believes Bitcoin hit its bottom this year around $60,000 and, propelled by the tailwind of trillions in USD and RMB about to be created, reclaiming $126,000 is a foregone conclusion. Many detractors will refuse to participate in this Bitcoin rally because it has significantly underperformed tech stocks and gold over the past 24 months. Many cannot understand the point of Bitcoin as a hedge against rampant money printing. However, he asserts it will demonstrate its sensitivity to fiat liquidity expansion.

Hayes predicts the rally will intensify because, once Bitcoin breaks through $90,000, many sellers of bearish put options will rush to cover their positions, making the price trajectory explosive. He stated he has no idea how high Bitcoin can go but will push the Maelstrom portfolio to maximum risk unless any dramatic changes occur.

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

Weiss Crypto analyst Juan M. Villaverde stated that he does not believe BTC will decline significantly from current levels; instead, he expects a modest pullback, with the $70,000 support level holding. He anticipates a significant low could appear before the end of July this year.