Huobi Growth Academy | Macro Research Report on the Crypto Market: Powell's Dovish Stance and Ethereum's New High, Macro Logic and Structural Outlook of the Crypto Market

I. Macroeconomic Background: The Fed's Policy Shift

On August 22, 2025, Federal Reserve Chairman Powell's speech at the Jackson Hole Global Central Bank Annual Meeting became the focal event for global markets this week. His unexpected dovish signals during his last public appearance in office opened the door for a possible rate cut in September. This statement not only reshaped market expectations for future monetary policy but also directly ignited a rally in risk assets, including cryptocurrencies. To understand the market's intense reaction, it is essential to analyze the Fed's policy dilemma, the key messages from the speech, and the market's immediate interpretations from a macro perspective.

Since the beginning of 2025, the Fed's policy environment has been in a dilemma. On one hand, the high tariff policies implemented by President Trump have significantly pushed up the prices of certain goods, putting upward pressure on inflation levels. If the Fed maintains a tightening stance, it could continue to suppress inflation, but the cost would be that long-term high interest rates might trigger turmoil in financial markets and even lead to a concentrated outbreak of credit risk. On the other hand, the U.S. labor market has shown clear signs of cooling since the beginning of the year, with significant slowdowns in job growth. If the Fed ignores the downside risks in employment, it would violate its dual mandate's commitment to "maximum employment," potentially triggering broader social discontent. This "no-win" policy dilemma led the market to generally expect that Powell would continue a hawkish stance, prioritizing inflation control. Some market participants even likened him to "Volcker 2.0," using a tough monetary policy to exchange for long-term price stability and policy credibility. However, the reality is far more complex than the market imagines: the nature of inflationary pressure is more akin to a one-time level jump rather than a persistent vicious spiral; meanwhile, the signs of a slowing job market are more real and enduring. This risk assessment ultimately prompted Powell to unexpectedly "turn dovish" in this speech.

The core of Powell's speech lies in the redefinition of risk balance. Over the past two years, the Fed's communication framework has primarily emphasized "upside risks to inflation," while the labor market was seen as sufficiently resilient. However, at Jackson Hole, he explicitly pointed out that the labor market is in a "peculiar balance"—both supply and demand are slowing, with job growth significantly below levels of the past few years. If this trend continues, it could quickly evolve into a wave of layoffs and a rapid rise in unemployment rates. This statement marks the first time the Fed has placed the downside risks to employment on par with, or even higher than, inflation. Secondly, his assessment of inflation is equally thought-provoking. Powell acknowledged that tariffs have indeed pushed up the prices of certain goods, but he believes this is more of a "one-time" effect rather than a long-term risk. In other words, the Fed does not intend to maintain high interest rates due to short-term price increases but prefers to observe the pace of their digestion. More importantly, the Fed officially announced a revision of its policy framework at this annual meeting, removing the "average 2% inflation target" from the 2020 framework and returning to a "flexible inflation targeting regime." This change means that the Fed no longer deliberately pursues long-term average compensation but emphasizes dynamic adjustments based on actual economic data. This return to flexibility allows it greater maneuverability when facing conflicts between employment and inflation targets. Finally, Powell emphasized that if employment risks materialize, the Fed may take "preemptive" actions to avoid a cliff-like decline in the labor market. This is almost a public hint at a rate cut in September.

The market reacted very quickly to this speech. According to CME FedWatch, before Powell's speech, the market estimated a 75.5% probability of a 25 basis point rate cut in September, which quickly rose to 91.1% afterward. In other words, the market has viewed a rate cut as "a done deal." In terms of asset prices, risk assets collectively rebounded: the three major U.S. stock indices rose over 1.5% on the day, and the market capitalization of crypto assets returned to $4.1 trillion. Notably, ETH surged over 14% in a single day, breaking the historical high of $4,887, becoming the biggest beneficiary of the rate cut expectations. The underlying logic is that once a rate cut begins, the liquidity environment improves, and funds will be reallocated to high-growth, high-elasticity assets, with ETH serving as a core asset of the new financial infrastructure, possessing a natural advantage in absorbing liquidity. Of course, the market's fervent emotions need to be tempered with caution. On one hand, the strengthening of rate cut expectations indeed provides an opportunity for asset prices to rise; on the other hand, there are still differing voices within the Fed, with some officials reminding that inflation risks cannot be ignored. If the CPI and non-farm data for August perform strongly, market expectations for a rate cut may still face adjustments. Overall, the message released by this speech is that the Fed is gradually transitioning from a hawkish "inflation-first" approach to a dovish "employment-first" stance, and this shift in risk balance provides a new growth window for risk assets, especially in the crypto market.

Powell's dovish speech at the Jackson Hole meeting not only changed expectations in the U.S. interest rate market but also triggered a synchronized response across major global assets. First, U.S. stocks saw significant gains, with the three major indices rising between 1.5% and 1.9%, with technology and growth sectors benefiting first. Crypto-related stocks were highlights, with SharpLink up 15.7%, Bitmine up 12.1%, and Coinbase up 6.5%, as funds re-priced the liquidity dividends brought by future rate cuts. Secondly, the dollar and interest rate markets adjusted in sync. The dollar index fell significantly after the speech, indicating an increase in risk appetite; federal funds futures quickly priced in a high probability scenario of a 25 basis point rate cut in September, leading to an overall downward shift in the yield curve. Long-term Treasury yields fell, further reinforcing bets on a loose environment. Finally, the crypto asset sector quickly benefited, with total market capitalization rebounding to $4.1 trillion. Among them, ETH had the highest contribution, breaking its historical high in a single day, driving a broad rally in Layer 2 and staking sectors, with on-chain funds showing a trend of shifting from BTC to ETH. Overall, the global market has entered a new phase of "increased risk appetite + liquidity repricing," with the crypto market at the forefront.

II. Structural Changes in the Crypto Market

In the macro context of Powell's dovish speech, the crypto market has shown structural differentiation. The performance of different sectors reveals changes in the flow of funds and market logic. Overall, BTC is experiencing capital outflows and structural selling pressure, while ETH has become the core driving force behind the new highs, spreading risk appetite across the entire market and signaling the onset of an Altseason. BTC performed poorly this week; despite receiving support from the 60-day moving average, the overall trend remains weak. In terms of capital, BTC's spot ETF saw a net outflow of as much as $1.165 billion in a single week, becoming a major factor suppressing its price. This indicates that institutional investors have chosen to take profits or shift positions in the short term, weakening the marginal buying demand for BTC. More concerning is that BTC's market share continues to decline. Over the past few months, BTC dominance has been in a downward channel, indicating that its function as a "safe haven anchor" is weakening. The shift in capital risk appetite towards high-elasticity ETH and altcoins challenges BTC's dominant position in market pricing. Combining on-chain data and ETF fund movements, it can be inferred that BTC is currently acting more as a "source of funds" rather than a "destination for funds." ETH has become the absolute core of the market this week, rising 14.33% in a single day, breaking the historical high of $4,887.5, with a weekly increase of 6.88%. This is not only a price breakthrough but also a turning point in market structure: ETH has successfully guided the rotation of funds, establishing its core asset status in the new cycle. On-chain data shows that the liquidation amount for ETH in the past 24 hours reached $368 million, surpassing BTC, indicating that the passive squeeze of shorts is an important driver of the rapid price increase. This "short squeeze" market often means that the price breakthrough is supported by real capital inflows rather than purely driven by sentiment.

The rise of ETH has also produced significant "spillover effects." Related ecological sectors have seen widespread gains: Layer 2 sector: Arbitrum (ARB) rose 9.5%, reflecting the market's repricing of the expansion ecosystem; staking sector: SSV saw a daily increase of over 25.5%, indicating accelerated capital inflows into ETH staking and distributed validation; restaking: ETHFI rose 20.7%, with this emerging narrative quickly responding to the market. These data indicate that ETH not only broke through its price but also drove the overall valuation system of the ecosystem higher, exhibiting a "liquidity magnet" effect. As ETH funds gather and break new highs, the altcoin market has become fully active. There are significant signs of fund rotation, with non-ETH assets generally receiving spillover dividends. The continued decline in BTC dominance is a key characteristic of the initiation of Altseason. Historically, when this signal lights up, it indicates that in the coming weeks, market funds will further spread to mid- and small-cap tokens. This round of upward momentum driven by ETH may form a top-down transmission: from ETH → ecological sectors → high-market-cap altcoins → mid- and small-cap tokens, releasing risk appetite layer by layer.

However, it is important to note that Altseason is often accompanied by high volatility and high risk. The competition for funds in the altcoin sector is stronger, and there may be rapid rotations and concentrated liquidations in the short term. Therefore, although indicators suggest that the altcoin market may welcome weeks of prosperity, its sustainability depends on whether macro liquidity materializes and whether ETH can maintain its high position. Overall, the crypto market is undergoing a structural repricing. BTC, as a "source of existing liquidity," is temporarily under pressure, while ETH has become the "core asset of the new cycle," driving the overall market's risk appetite upward and igniting the altcoin rally. If the Fed officially cuts rates in September, ETH is likely to continue its strong performance and further spread Altseason; however, if macro data reverses or capital inflows are insufficient, the market may also face severe corrections in the short term.

Overall, this week, the movements of on-chain whales exhibit three main characteristics: BTC capital outflows, ETH becoming the core asset of the new cycle; rolling positions and leverage boosting the market, but also accumulating potential liquidation risks; leading investors choosing to concentrate their bets on ETH, reinforcing market consensus. This means that ETH's rise is not solely reliant on retail sentiment but is the result of the migration of real capital and the expansion of leverage. However, the aggressive actions of whale capital also imply increased short-term risks; if macro data and rate cut expectations fall short, the market may quickly reverse. In the coming weeks, on-chain capital movements will remain a key variable in observing whether ETH can maintain its high position. If capital continues to flow in, ETH's strong pattern is likely to persist; if whales begin to reduce positions or lock in profits, the market should be wary of high-level fluctuations and deep corrections.

III. Core Logic Analysis of ETH and BTC

Ethereum (ETH) broke through its historical high this week, becoming the most dazzling focus of global risk assets. From macro policies to on-chain ecosystems, and to capital allocation logic, ETH is undergoing a multidimensional value reassessment. Unlike purely sentiment-driven movements, the current rise is underpinned by solid macro and fundamental support. The price performance of ETH is highly correlated with the macro monetary environment. Powell's dovish signals at Jackson Hole rapidly heated market expectations for a 25 basis point rate cut in September to over 90%. A rate cut means lower capital costs and liquidity expansion, and high-growth and high-elasticity assets often benefit first. Compared to BTC's "store of value" attribute, ETH is closer to a "risk asset," with its price being more elastic to marginal changes in liquidity. Once a rate cut is realized, global capital allocation will increase exposure to technology, growth, and digital assets, with ETH being the primary target in the crypto space. Therefore, ETH's new high is not only a reflection of on-chain logic but also a result of macro liquidity expectations being priced in.

ETH's ecological advantages are the core logic behind its price increase in the medium to long term. Since the "Merge" in 2022, ETH has transitioned to a PoS mechanism, with staking becoming its core value capture method. Currently, the staking rate across the network is steadily increasing, with staked ETH accounting for over one-third. As staking rewards are gradually viewed as "bond-like assets," ETH has become a unique asset combining growth potential and cash flow attributes. Meanwhile, the Layer 2 expansion ecosystem is rapidly developing. Active users and transaction volumes on networks like Arbitrum and Optimism continue to grow, significantly reducing transaction costs and enhancing network scalability. This not only strengthens ETH's network utility but also supports its positioning in global financial infrastructure. The emerging restaking sector is also attracting capital. Projects like ETHFI are enhancing capital efficiency by utilizing staked ETH assets in a compounded manner. The continuous influx of funds not only drives the prices of related tokens up but also further consolidates ETH's central position. It can be said that ETH's ecosystem is forming a triangular support of "staking—restaking—Layer 2 expansion."

In terms of market expectations, leading investors generally hold an optimistic view of ETH. BitMEX co-founder Arthur Hayes stated in an interview that as long as ETH breaks its historical high, its upward space will be "fully opened," with target ranges possibly between $10,000 and $20,000. This indicates that the market has begun to view ETH as the protagonist of a new cycle. In the short term, ETH's rapid rise has been accompanied by large-scale short liquidations. In the past 24 hours, the liquidation amount for ETH reached $368 million, surpassing BTC. This indicates that the market breakthrough is not only driven by active buying but also by the passive squeeze of shorts. This "short squeeze" effect often reinforces short-term gains but can also lead to greater volatility when sentiment recedes. In the medium term, whether ETH's price can extend further depends on two factors: first, whether the Fed's rate cut is truly realized and whether its easing path can be sustained; second, whether the ETH ecosystem can maintain high growth, especially in staking and Layer 2 activity. If both macro and ecological benefits are realized, ETH's valuation system may undergo a repricing, making a price breakthrough of $10,000 not out of reach. In the long term, ETH's value is gradually transitioning from a "speculative asset" to a "new financial infrastructure." Whether in decentralized finance (DeFi), restaking protocols, or blockchain-native applications, ETH is the core of underlying settlement and collateral. As institutional investors' acceptance of crypto assets increases, ETH is expected to become an indispensable part of global investment portfolios.

Despite the clear logic behind ETH, potential risks still need to be heeded: macro uncertainty: if the August CPI or non-farm data exceeds expectations, the Fed's rate cut logic may be shaken; leverage risk: the rolling positions of on-chain whales and the increase in high-leverage positions have heightened market fragility; regulatory risk: regulatory dynamics in the U.S. and other major economies may still significantly impact the pace of capital inflows. The logic behind ETH's rise can be summarized as: "macroeconomic liquidity turning point + continuous ecological expansion + active capital rotation." Against the backdrop of strengthened rate cut expectations, ETH's price breakthrough is not only sentiment-driven but also a result of structural market reconstruction. In the coming months, ETH is expected to continue acting as a "cycle leader," with its performance determining the overall risk appetite level in the crypto market.

In this round of market activity, Bitcoin (BTC) and Ethereum (ETH) have shown a clear divergence in market performance. ETH reached a historical high and attracted significant capital inflows, while BTC has remained relatively sluggish, with a price drop of 3.41% this week, closing at $113,478. As the "leader" of crypto assets, BTC's temporary loss of luster has drawn market attention: why has BTC failed to benefit from rate cut expectations? What are the future challenges and opportunities? BTC has always been viewed as "digital gold," with its logic based more on "anti-inflation" and "store of value." However, in the current macro environment, this logic has weakened to some extent: different nature of inflation: the current inflationary pressure in the U.S. mainly stems from tariffs and structural factors rather than widespread demand overheating. This means that the market's demand for "safe-haven assets" is declining, while preference for "growth assets" is rising. ETH, as a high-elasticity growth asset, is more attractive, while BTC's "anti-inflation anchor" function is being marginalized. Differences in the transmission of rate cut benefits: when rate cut expectations strengthen, capital is more willing to allocate to assets with cash flow attributes or ecological expansion potential. ETH, due to PoS staking rewards and ecological prosperity, has become the preferred choice, while BTC lacks similar cash flow support, making it relatively less sensitive to liquidity easing. Therefore, in the phase of "increased risk appetite," BTC's macro attributes have become a drag.

Another significant challenge for BTC comes from the capital flow of spot ETFs. This week, BTC's spot ETF saw a net outflow of $1.165 billion, becoming a direct reason for its price pressure. This capital outflow reflects the behavior patterns of institutional investors: when BTC prices are high for an extended period, they tend to lock in profits or shift positions to more elastic ETH. From the data, the net inflow of BTC ETFs at the beginning of the year drove prices to spike, but with the rise of the ETH narrative, some funds have shown clear signs of "migration from BTC to ETH." The change in institutional capital attitudes is one of the core pressures BTC currently faces. On-chain data for BTC shows that long-term holders (LTH) are releasing some of their holdings. The rising on-chain profit margins have led some early investors to choose to cash out at high levels, increasing market selling pressure. At the same time, BTC's market share (dominance) continues to decline, dropping from nearly 50% at the beginning of the year to below 45%. This trend indicates that BTC's "dominance" in the market is being weakened. The ecological expansion of ETH and the capital siphoning effect are causing BTC's relative weight in capital allocation to decrease. If this trend continues, BTC will gradually degrade from a "market core" to a "base asset," with its market-driving ability diminishing. Technically, BTC is currently in a fluctuating downward channel; although it has received some support from the 60-day moving average, there is heavy pressure above. The decline in trading volume and the contraction of volatility indicate that BTC is in a "low activity" phase. In contrast, ETH and altcoins are experiencing high volatility and high trading volumes, attracting more short-term capital. From a cyclical perspective, BTC's performance often leads the macro liquidity cycle, but at this stage, it is lagging behind ETH. This is closely related to changes in capital preferences: investors are more willing to chase short-term gains, while BTC's slow pace and low elasticity make it temporarily lack trading appeal.

Despite facing challenges of capital outflows and declining market attention, BTC's long-term logic has not completely failed: institutional cornerstone status: BTC remains the most accepted asset in the crypto space, and the existence of ETFs provides a long-term capital foundation. Safe-haven attribute as a fallback: should macro risk events occur, BTC's "digital gold" positioning may still attract capital. Potential for cyclical rebounds: if ETH experiences a temporary pullback, capital may flow back into BTC, forming a relative recovery. However, BTC's future opportunities are more defensive than offensive. It may perform steadily when downward risks arise, but during phases of liquidity easing and rising risk appetite, its performance will continue to lag behind ETH and altcoin sectors. Currently, BTC's challenges focus on three aspects: weakened macro logic: under rate cut expectations, its "digital gold" narrative lacks elastic advantages; severe capital outflows: net outflows from ETFs and whale position shifts have weakened market buying demand; declining market share: the rise of ETH and altcoins has eroded BTC's dominant position. In the future, BTC's trend may exhibit a "fluctuating defensive" pattern. It remains a foundational asset for institutional allocation, but in the short term, it is unlikely to become the core driving force of the market. In the new round of liquidity easing cycles, BTC is more likely to play the role of a "value anchor" rather than a "growth engine."

IV. Macroeconomic Risks and Uncertainties

In the context of ETH breaking historical highs and a comprehensive rebound in market risk appetite, investor optimism has rapidly intensified. However, macro and on-chain data indicate that the current market situation is not without flaws, and potential risks and uncertainties still exist. Whether in terms of policy direction or capital structure, the market may face significant reversal pressures. This section analyzes four aspects: macro policy, data validation, market structure, and regulation. Although Powell's dovish signals at Jackson Hole have led the market to almost view a September rate cut as "a done deal," there are still divisions within the Fed. Some officials emphasize that inflation risks remain high, and premature easing could lead to uncontrollable inflation expectations. For example, Fed Governor Musalem pointed out that the decision to cut rates cannot be based solely on the results of one meeting but should focus on the "overall interest rate path." This means that if future data validation is insufficient, the Fed may choose to delay or reduce the extent of rate cuts. The market's previous pricing of liquidity easing has been overly optimistic; if expectations fall short, ETH and the overall crypto assets may face a sharp short-term correction.

The August CPI and non-farm employment report will become the core indicators determining whether to cut rates in September. If the data performs worse than expected, it will reinforce employment risks and support the Fed in starting a rate cut cycle; however, if inflation rebounds or employment unexpectedly remains strong, the market will readjust its expectations for rate cuts, at which point risk asset valuations may face significant compression. This "data dependency" reinforces the short-term uncertainty in the market. Investors need to be cautious that market volatility will significantly amplify around the data release, with high-leverage funds likely to be the first to feel the impact. On-chain data shows that during this round of ETH's rise, the liquidation amount reached $368 million, surpassing BTC. A large number of shorts were passively squeezed out during the market breakthrough, driving prices up rapidly. However, accompanying the rise is an accelerated influx of leveraged funds. Whale rolling positions, 25x leveraged long positions, and FOMO buying behaviors have led to a significant increase in market leverage. If the market reverses, these leveraged positions could become the trigger for chain liquidations, causing short-term liquidity crunches. The extreme nature of market sentiment amplifies volatility and increases the vulnerability of risk exposure.

The long-term development of the crypto market is still constrained by regulatory environments in various countries. Although President Trump has shown some openness to crypto in certain policies, the uncertainty of his tariff policies and financial regulatory strategies may still pose external risks to the market. If regulatory authorities increase scrutiny of crypto platforms, stablecoins, or staking businesses, it could affect the pace of capital inflows.

Moreover, the policy stances of other global economies cannot be ignored. Europe is advancing the MiCA framework, while Asian countries are cautiously observing capital flows. If major global economies tighten their policies, cross-border capital flows in the crypto market may be suppressed. In summary, while the current market is driven by rate cut expectations and on-chain capital, risks and uncertainties remain high: internal divisions within the Fed may lead to a rate cut pace lower than expected; macro data validation is a key variable supporting the continuation of the market; the accumulation of leveraged funds increases market volatility risks; global regulatory uncertainties may impact medium- to long-term capital inflows. Therefore, although ETH possesses dual macro and ecological benefits, market participants should remain rational and avoid blindly chasing highs. Before the rate cut is ultimately realized and data is confirmed, the sustainability of the market still requires cautious observation.

V. Conclusion

In the fourth week of August 2025, Powell's speech at Jackson Hole became the core catalyst for the global risk asset market. The dovish signals released rapidly heated market expectations for a September rate cut to over 90%, driving a synchronized rebound in U.S. stocks and the crypto market. ETH leveraged this momentum to break through historical highs, with a single-day increase of over 14%, reshaping the market structure and becoming the core asset of the new cycle. Overall, this week's market activity showcased three core logics: first, macro liquidity repricing. Powell's speech indicated that the Fed's policy focus is gradually shifting from "inflation-first" to "employment-first." This turning point suggests that the liquidity environment may significantly improve in the coming months, providing mid-term support for risk assets. ETH's sensitivity to marginal changes in liquidity is significantly higher than that of BTC, making it the preferred choice for capital. Second, market structure reconstruction. BTC faced capital outflows and ETF selling pressure this week, leading to price declines and a continuous drop in market share. In contrast, ETH not only broke through its price but also drove broad gains in Layer 2, staking, and restaking sectors, forming an "ecological resonance." Clear signs of fund rotation indicate that BTC is gradually degrading from a "destination for funds" to a "source of liquidity," while ETH is becoming the new "liquidity magnet" in the market. Third, on-chain capital and sentiment resonance. Whale position shifts, rolling positions amplifying leverage, and well-known investors concentrating their bets on ETH all show that leading capital is optimistic about ETH's long-term prospects. However, this capital push also amplifies market volatility. The accumulation of high leverage and FOMO sentiment means that while the market is strong, potential risks cannot be ignored.

Looking ahead, after breaking historical highs, market expectations for ETH have further opened up. If the Fed cuts rates as expected in September, ETH is likely to continue its strong performance, with price ranges potentially moving towards $10,000 to $20,000. However, it is essential to note that the continuation of the market depends on macro data validation and sustained capital inflows. On the risk front, investors should be cautious about three points: first, if the August CPI or non-farm data exceeds expectations, it may shake the rate cut logic; second, high on-chain leverage positions are prone to trigger chain liquidation reactions; third, uncertainties in the global regulatory environment may impose potential constraints on capital flows. Overall, the core logic of this week's market can be summarized as: "macro turning point + capital rotation + ETH establishing its position as the cycle leader." ETH has become the most resilient core asset in the new cycle, and its performance will determine the overall risk appetite level in the crypto market in the coming months. For investors, it is crucial to seize the structural opportunities presented by ETH while remaining vigilant about the volatility risks brought by short-term overheating, maintaining rationality and patience in the validation of macro and on-chain data.