BTC breaks through $100,000, the market may enter a high-level consolidation, investment advice is to focus on defense.

The rise in momentum and influx of funds mask structural risks, and the market may enter a phase of high-level fluctuations

• Macroeconomic Environment Warms Up: Credit rating downgrades, tariffs, and fluctuations in tax reduction policies lower market risk appetite, leading to a surge in gold prices.
• Capital Momentum: The inflow of stablecoins and ETF funds has led to strong new buying, but market risk aversion is rising, and sustainability remains to be seen.
• Price and momentum are diverging: Bitcoin price is rising, with funds, off-exchange premiums, and ETFs all heating up simultaneously, while the risk of a pullback is increasing.
• Investment Strategy Recommendation: Focus on defense, pay attention to the Bitcoin support level at $103,000 and the performance of related companies, as well as the price trends of Ethereum/Bitcoin, Solana/Bitcoin, and other price ratios.

1. Macroeconomics and Market Environment

The downgrade of credit ratings, along with tariff and tax reduction policies, has driven up U.S. Treasury yields, causing fluctuations in the U.S. stock and cryptocurrency markets.

U.S. stocks may face adjustments, with tech stocks under pressure, while the financial and defense sectors are relatively resilient; cryptocurrencies may test support levels, and it is necessary to closely monitor signals of easing from the Federal Reserve.

Fiscal stimulus and interest rate cuts benefit U.S. stocks and cryptocurrencies, but caution is needed regarding the expanding deficit and risks to the dollar's status.

If the Federal Reserve initiates easing and the dominance of the dollar remains solid, the market will continue to rise; otherwise, it is necessary to increase the allocation of non-dollar assets.

Strategy: increase holdings of mainstream cryptocurrencies and dynamically adjust global asset allocation.

2. Capital Flow Analysis and Mainstream Coin Market Structure

External Capital Flow

• ETF Funds: This week inflows reached $2.8 billion, with a significant increase in the inflow scale.
• Stablecoins: This week, there was a rise of 2.3 billion USD, with an average daily rise of 321 million USD, remaining at a high level.

Market Sentiment Indicator

• OTC Premium: The premium on stablecoins continues to rise

Bitcoin (BTC)

• Technical Analysis: The market is in a fluctuating upward range.
• On-chain chip distribution: Chips above $103,000 increase

Ethereum (ETH)

The trend is weaker than Bitcoin, the Ethereum/Bitcoin exchange rate remains volatile, with funds continuing to flow back to Bitcoin dominance.

On-chain activity: The rise in active addresses may indicate the completion of a phase of bottom formation.

Macroeconomic Review

Impact of Credit Rating Downgrade on the Market

Background:

On May 16, 2025, a rating agency downgraded the United States' credit rating from Aaa to Aa1 due to a surge in debt size (36 trillion dollars, accounting for 122% of GDP) and high interest expenses (accounting for 3% of GDP). This marks the third time the U.S. has lost its AAA rating from the three major rating agencies, following downgrades in 2011 and 2023. The downgrade, combined with the tariff and tax reduction legislation (expected to increase the deficit by 3.3 trillion dollars), will exacerbate volatility in the U.S. Treasury market in the short term.

Historical Review:

• 2011: Risk aversion boosts demand for U.S. Treasuries, with the 10-year yield falling to 1.7%.
• 2023: Increased bond issuance led to selling pressure, causing yields to rise to 4.9%, followed by fluctuations.
• 2025: Similar to 2023, downgraded and policy uncertainty drive up yields (30-year has surpassed 5%), short-term selling pressure continues.

Supply Side:

• Low maturity pressure: The peak of US Treasury maturities in May-June mostly consists of short-term Treasury bills (accounting for 80%), with a 4% yield attracting buyers and low extension risk.
• High pressure for bond issuance: Related legislation will expand bond issuance, increasing supply, and yields may rise further.

Demand Side:

• Short-term: Interest rate cuts (saving about $90 billion in interest for every 25 basis points) and halting balance sheet reduction can boost demand and lower yields.
• Long-term: The demand for US Treasuries relies on the hegemony of the US dollar, which needs to maintain the international status of the dollar to ensure rigid buying.

Impact on US Stocks and Bitcoin

Short-term impact (until July 2025)

1. US Stocks

• Market volatility intensifies: The downgrade of credit ratings increases market concerns about the sustainability of U.S. finances, compounded by uncertainty surrounding tariff policies (10% tariffs on China, Canada, Mexico, and globally) and tax cut legislation, which may trigger a rise in risk-averse sentiment. The increase in U.S. debt supply due to the elevated debt ceiling raises yields (the 30-year yield has already surpassed 5%), increasing corporate financing costs.
• Sector differentiation:

Sectors under pressure: Technology stocks and high-valuation growth stocks are sensitive to interest rates, and rising yields will suppress valuations (such as major tech stocks with high price-to-earnings ratios). Consumer goods and retail may be under pressure due to increased costs from tariffs.

Beneficiary sectors: The financial sector (such as banks and insurance companies) benefits from a high interest rate environment, while the defense and energy sectors may perform strongly due to increased spending from related legislation.

• Policy signals: If there are signals of interest rate cuts or halting the balance sheet reduction in July, it may alleviate market pressure and boost the stock market, especially small and mid-cap stocks.

Strategy:

• Reduce holdings in overvalued tech stocks, focus on the financial, defense, and energy sectors.
• Pay attention to policy signals dynamically and be prepared to seize rebound opportunities under the expectation of interest rate cuts.
• Configure defensive assets (such as consumer staples ETFs or gold) to hedge against volatility.

2. Cryptocurrency

• Interest rate pressure: The rise in U.S. Treasury yields reduces the attractiveness of non-yielding assets (such as cryptocurrencies), and funds may flow into high-yield Treasury bills (4% yield).
• Potential benefits: If July suggests interest rate cuts, the crypto market may rebound early, as easing expectations are favorable for risk assets. Decentralized Finance (DeFi) projects may attract some funds due to safe-haven demand.

Strategy:

• If a loosening signal is released, consider increasing holdings in mainstream cryptocurrencies (such as Bitcoin, Ethereum) or DeFi tokens.

2. Long-term Impact (After 2025)

1. US Stocks

• Fiscal policy driven: The $3.8 trillion tax cuts and $200 billion defense/border spending from related legislation will stimulate economic rise, benefiting the overall performance of U.S. stocks. If tariff revenue (estimated at $2.7 trillion) effectively offsets the deficit, market concerns about fiscal deterioration will ease, supporting the continuation of the bull market.
• Interest Rates and Valuation: A rate cut (saving $90 billion in interest expenses for every 25 basis points) can lower corporate financing costs and boost high-growth sectors (such as technology and clean energy). However, if the deficit continues to widen and high rates are maintained, valuation pressure will limit upside potential.
• Impact of Dollar Hegemony: The long-term performance of the US stock market relies on the international status of the dollar. If dollar hegemony is solid (through current account outflows and financial account recoveries), foreign capital inflows will support the US stock market; if the dollar's status is shaken, capital outflows may drag down the market.

2. Cryptocurrency

• Looser monetary policy benefits: If interest rates continue to be cut and quantitative tightening stops, increased liquidity will drive cryptocurrency prices up, similar to the bull market of 2020-2021 (Bitcoin rose from $10,000 to $69,000). In the long run, Bitcoin may break through $150,000.
• Regulation and Adoption: If the government's attitude towards cryptocurrency is friendly (such as supporting Bitcoin reserves), it may promote institutional adoption and benefit the market. However, if fiscal deterioration leads to a crisis of confidence in the dollar, cryptocurrencies may attract capital flows as a safe-haven asset.
• Risk Factors: If interest rate cuts are delayed or if the dominance of the dollar is challenged, the crypto market may experience increased volatility due to a decline in risk appetite.

Strategy:

• Hold mainstream cryptocurrencies (such as Bitcoin, Ethereum) for the long term, and pay attention to on-chain data (such as active addresses and transaction volume) to determine trends.
• Diversify investments into potential projects (such as Layer 2 solutions, Web3) to avoid the risk of a single asset.
• If the status of the US dollar weakens, increase Bitcoin allocation as a hedge.

2. On-chain Data Analysis

1. The changes in medium and short-term market data that affected the market this week

1.1 Stablecoin Fund Flow Situation

This week (from May 16 to May 26), the total amount of stablecoins slightly rose to 213.596 billion, with an issuance of 2.34 billion, showing a significant recovery compared to the previous period. The recovery mainly occurred in the second half of this week. In relation to the total amount of stablecoins (213.596 billion), 2.34 billion accounts for about 1.1% of the increase, indicating a relatively clear recovery. For low market cap coins, this is a positive marginal change. The increase in issuance means that there is more "buying power ready to be投入加密市场" being minted.

1.2 ETF Fund Flow Situation

This week, Bitcoin ETFs saw a significant inflow of $2.8 billion, which is a strong signal of capital indicating that institutional investors are becoming bullish on Bitcoin again. The estimated number of Bitcoins that the ETFs might purchase, while slightly lower than the 33,462 coins from the week of April 21, is significantly higher than the previous weeks (especially last week's 5,849 coins), indicating substantial buying, and the price trend is consistent with the capital flow.

1.3 Off-exchange Premium and Discount

This week, the off-chain premium for stablecoins has slightly risen and has returned to the 100% level, indicating that the demand for stablecoins in the market has resumed. Combining the stablecoin data, not only is the on-chain data showing optimistic performance, but there is also a slight warming trend in off-chain capital inflows.

1.4 Related Company Purchases

Since the start of this round of rise (on April 14), a certain company has purchased 48,045 Bitcoins, spending approximately $4.5469 billion. By combining the stablecoin data and ETF data mentioned above, we can see that this company's purchases have actually become an important channel for funding this round of rise. Moreover, the frequency of purchases since last year's relatively high point has significantly increased compared to 2023-2024. Currently, the company's cost has risen to $69,726, close to the low point in April. From an analytical perspective, this company has already become an important force affecting the market, and relevant data monitoring should be strengthened in the future.

1.5 Exchange Balance

In the second half of this round of rise, when the price was at 95000, the market saw both Bitcoin and Ethereum continuously being withdrawn from exchanges, indicating that investors were unwilling to sell. Especially with Ethereum, after a short squeeze rise (to 2500), there was a rapid withdrawal of funds from exchanges, releasing a strong "lock-up intention", showing that investors were regaining confidence, which is actually an important force supporting the rise in the second half of this round. However, it is important to note that currently, the speed of balance reduction has slowed down, and it is crucial to closely monitor whether the liquidity of the exchanges will continue to be squeezed.

2. Changes in mid-term market data affecting the market this week

2.1 Holding Address Holding Ratio and URPD

This week's data on the holding ratio of wallet addresses has not shown significant changes, especially for addresses holding between 100-1K, which have not continued to increase their holdings noticeably. The URPD shows a relatively healthy columnar structure, and from these two data points, there is no indication of any abnormal activity.

On the data level, this week's funding and on-chain data actually performed well, coupled with the relatively stable K-line trend.