The desire for interest rate cuts intertwines with valuation uncertainty, and after the BTC rise Relay, the fourth wave of pump will continue.

Author: 0xWeilan

Affected by the U.S. economic and employment data, the expectations for restarting interest rate cuts are uncertain, with fluctuations in the main pricing capital inflows and outflows. Along with long-term selling across cycles and the rotation of on-site funds, the crypto market in August showed an overall trend of "weak-strong-weak" with prices exhibiting a "hump" shape.

BTC fell by 6.49% for the entire month, closing at $108,247.95. The altcoin representative ETH surged by 18.75%, closing at $4,391.83.

According to eMerge Engine, BTC is currently in the late stage of a bull market rise. In the June report, we assessed that BTC would initiate a fourth wave of increases in the third quarter and reach a new all-time high. This assessment was confirmed in July, and as August began, the impact of the "tariff war" started to manifest in U.S. economic data, with both CPI and PCE showing a rebound trend. This led to continuous challenges to market expectations for a rate cut restart in September, causing the U.S. stock market, which had been overpricing the prospects of a rate cut restart, to experience ongoing fluctuations. This volatility transmitted to the crypto market through the Crypto Spot ETF, leading to BTC, which had reached an all-time high in the middle of the month, ultimately being repriced downward, representing a typical risk preference rebalancing phenomenon.

During the volatility, funds did not continuously flow out, appearing indecisive. Overall, BTC still gained a capital inflow of $329 million this month. The fundamental reason for the price drop is the selling from long positions across cycles within the crypto market and sector rotation.

The massive sell-off of ancient giant whales locked in profits, squeezing the not-so-abundant liquidity, while billions of dollars in funds flowed from BTC to ETH both on and off the exchange. EMC Labs believes that this collectively constitutes the fundamental reason for BTC's price dropping back to the "Trump bottom" (90,000~110,000 USD) after reaching a historical high.

The market has basically completed the repricing of interest rate cut expectations, with implied pricing indicating "a rate cut in September, two cuts within the year totaling 50 basis points." In the future market, before September 17, there are still multiple economic employment and inflation data to be released, and the market will continue to experience fluctuations.

However, with the restart of interest rate cuts, the U.S. economy is likely to achieve a "soft landing" driven by AI capital expenditure and technology, and while employment data may decline, it is unlikely to worsen significantly, making it a high-probability event. EMC Labs holds a cautiously optimistic view on the market in September; we believe that after experiencing a necessary short-term fluctuation, BTC will continue its fourth wave of increase.

Macroeconomic Finance: "Inflation Rebound" and "Cooling Employment" Pulling Down Interest Rate Expectations

In August, the U.S. capital market was mainly influenced by the competition among three major variables: "the performance of economic and inflation data, when the Federal Reserve will restart interest rate cut expectations, and concerns over the independence of the Federal Reserve." The market overall showed a trend of first cooling, then heating up, and then cooling again.

On August 1, employment data made its debut. In July, the unemployment rate in the United States rose month-on-month, with non-farm payrolls increasing by 73,000, far below the previously expected 100,000. At the same time, the U.S. Bureau of Labor Statistics significantly revised down the data for May and June, with the June revision exceeding 90%.

After the release of this surprising data, the Nasdaq fell sharply by 2.24% that day, and BTC followed with a decline of 2.17%. As a result of the data, FedWatch showed that the probability of the Federal Reserve cutting interest rates by 25 basis points in September rose significantly from 37.7% the previous day to 75.5%.

On the same day, the US dollar index fell sharply by 1.23% and continued to decline thereafter. This data reignited market expectations for a rate cut in September, leading to a sustained rise in both the US stock market and BTC, which reached an all-time high of 124,533.00 USD on August 14.

On August 12, the U.S. released CPI data that met market expectations and did not have a significant impact on the market. However, the market, which has already fully priced in interest rate cuts, remains highly sensitive to inflation data.

On August 14, the PPI data was released, showing an annual growth of 3.3%, significantly higher than the market expectation of 2.5%. Concerns about rising production costs eventually being passed on to consumers initially dampened market expectations for interest rate cuts. After reaching an all-time high, BTC started to decline and continued to drop until the end of the month. During the same period, the tech-focused Nasdaq began to weaken, with funds shifting from overvalued tech stocks to cyclical and consumer stocks, leading to a strengthening of the Dow Jones. This indicates that while expectations for interest rate cuts were not destroyed, the expected value was adjusted downward, and funds began to seek safer valuation targets.

On August 20, at the Jackson Hole Global Central Bank Conference, Federal Reserve Chairman Powell released his most "dovish" remarks of the year, suggesting that he would pay more attention to the cooling of the job market going forward and might lower interest rates to boost employment. The market was reassured, with traders pricing in a probability of over 70% for a rate cut in September, lasting until the end of the month.

The core PCE released on August 29, although basically in line with expectations, recorded an annualized growth of 2.9%, the highest since February 2025, indicating a slight increase in potential inflationary pressure. All three major U.S. stock indices responded with declines, but the drop in the Dow Jones index was noticeably smaller than that of the Nasdaq.

U.S. PCE Index Year-on-Year

By the end of the month, the market has fully priced in "September's restart of interest rate cuts, two times this year, totaling 50 basis points."

To lower interest rates, President Trump has escalated pressure on the Federal Reserve, directly announcing on social media at the end of the month the dismissal of Federal Reserve Governor Lisa Cook, who advocated against lowering interest rates, due to her "mortgage document fraud." This incident further raised concerns in the market about the independence of the Federal Reserve.

Cryptocurrency: BTC returns to "Trump bottom", ETH inflow reaches historic record

In August, BTC showed a "hump" trend. At the beginning of the month, the significantly revised employment data put pressure on it, but it was quickly driven by interest rate cut probabilities exceeding 80%, regaining upward momentum and reaching an all-time high on August 14. After the PPI data was released on the 14th, it entered a continuous downward trend in the second half of the month.

Technically, BTC has struggled to return to the "Trump Bottom" (90,000~110,000 USD), and has temporarily broken through the "first upward trend line" of this bull market and the important 120-day moving average.

BTC price daily line

From a monthly perspective, after a continuous rebound for 4 months, BTC experienced a monthly pullback of 6.49%, with trading volume slightly shrinking. The price drop of BTC this month can be seen as a technical correction under the dual impact of "overpricing being revised and funds shifting". We believe that with the restart of the interest rate cut cycle and changes in market risk appetite, mainstream funds will flow back into BTC, driving it to continue the fourth wave of the current cycle's upward trend.

The decline in BTC is basically linked to the Nasdaq index and is related to expectations of interest rate cuts. It is generally believed that after the market enters a rate-cutting cycle, risk assets will continue to strengthen. Although BTC is also a highly volatile asset, within the cryptocurrency market, it is viewed as a more "blue-chip" asset compared to Altcoins.

As the interest rate cut approaches and consensus on public chain assets strengthens, capital both on and off the exchange is accelerating its inflow into ETH.

Fund flow: ETH inflow exceeds BTC by over 10 billion.

This month, the total inflow of funds into the crypto market reached $27.778 billion, including $16.414 billion in stablecoins, $3.420 billion in ETH Spot ETFs, $7.485 billion in ETH corporate purchases, $0.226 billion in SOL ETFs, and $1.505 billion in BTC corporate purchases, but $1.176 billion flowed out of BTC Spot ETFs.

Cryptocurrency Market Capital Inflow Statistics (Monthly)

Statistics on the current main purchasing power of BTC show that only $329 million has flowed into both the BTC Spot ETF and corporate purchases, significantly lower than last month. This is the fundamental reason for BTC's weak performance this month.

In contrast, ETH Spot ETF and ETH corporate purchases reached a total of 10.805 billion USD, setting a historical record. EMC Labs believes that there is a clear trend of funds flowing from BTC to ETH, both on and off the exchange.

ETH Fund Inflow Statistics (Monthly)

There are three reasons for this. First, in the past few years, the consensus on BTC has basically completed its spread in major countries like the United States, and more funds have begun to focus their attention on the second-largest cryptocurrency, ETH. Second, with the United States entering a crypto-friendly era, a trend of using blockchain technology to transform the traditional financial industry has begun to emerge. As the native currency of the largest smart contract platform, ETH is receiving increasing attention and allocation from industrial capital. Finally, during this cycle, BTC has already reached a historical high, while ETH has not yet surpassed the peak of the previous bull market. Coupled with the historical experience that the Altseason will eventually explode in a low-interest-rate environment, speculative funds have poured into ETH, driving its price to rise rapidly.

Based on the restart of the interest rate cut cycle, the risks are in the re-pricing of production and the historical rates of Altseason. In our report last month, we suggested that Altseason is opening up. Now we believe that ETH is in the mid-stage of price discovery within this cycle, with significant upside potential still ahead. As the interest rate cuts restart, risk appetite increases, and a broader range of Altcoin prices may experience rapid increases driven by speculative buying.

Chip structure: The third wave of selling continues

In addition to capital rotation, another important reason for the price divergence of BTC and ETH in August is that long positions have already initiated the third wave of selling in this round of the BTC cycle (previous bull markets only had two waves of selling).

In August, long-term holders accelerated their selling, with a reduction scale exceeding 150,000 coins, including ancient accounts with substantial profits from the Satoshi era. This selling drained the not-so-abundant inflow of funds, pushing the price down for rebalancing. Due to the immense scale of a single entity, the selling by ancient whales has added a degree of randomness to the significant sell-off data. Currently, the holdings of long-term holders are still higher than in February, and with subsequent liquidity increasing, the selling is expected to continue.

Long positions, short positions, miners, and centralized exchange position statistics

From the exchange's perspective, this month the outflow of BTC is 38,620 coins, slightly less than last month, which is consistent with the characteristics of a bull market rising period.

Conclusion

The eMerge Engine shows that the BTC Metric is 0.375, and BTC is in an upward relay period.

We believe that today, with treasury companies, Spot ETFs, and industrial capital making significant entries, the crypto market has entered a new stage of "mainstreaming" development. For BTC, volatility will gradually decrease, and its correlation with U.S. stocks, especially the Nasdaq, will strengthen. As for assets on smart contract platforms like ETH and SOL, the entry of mainstream capital has only just begun, and the diffusion of consensus will inevitably lead to a repricing.

As we enter September, when interest rate cuts are about to begin, the market will not be smooth sailing; the high valuations of the US stock market and the independence of the Federal Reserve continue to trouble the market.

But the cycle will continue.