Crypto market July report: The fourth wave of pump has started as expected, the tariff war triggers a core PCE Rebound, and the interest rate cut in September will face a big test.

Author: 0xWeilan

In the June report, we pointed out that due to sufficient wash trading and a considerable amount of chips entering the hands of institutions, the next rally may be completed rapidly in the short term. We originally expected this breakthrough to occur in August or September, but if expectations for interest rate cuts drive forward-looking buying and accelerate structural allocation, we cannot rule out the possibility of the rally advancing to July.

The market rose as expected, and we saw this expectation realized quickly in July. BTC rose 8.01% for the whole month and tested a historical high of $120,000.

This is backed by the enthusiastic purchases from enterprises, continuous inflows of ETFs, and stablecoin channels, forming substantial support. However, the expectations of interest rate cuts and the actual situation of the tariff war have changed significantly, suppressing the rapid price surge and temporarily interrupting the unfolding of Altseason. There are still many uncertainties regarding whether interest rates can be cut in September.

Since 2023, individual investors and the business community in the United States have gradually increased their allocation to crypto assets represented by BTC. By November 2024, after Trump is elected as the 47th President of the United States, BTC will be established as a national strategic reserve, and a series of crypto-friendly policies will be implemented, marking a complete departure of crypto assets and the blockchain industry from the primitive era.

However, deep participants in the crypto market are facing a situation of extremes. On one hand, BTC is being accumulated for the long term by new funds, and its price is gradually reaching new heights; on the other hand, the Altseason seems to have come to an end, with Ethereum, which is regarded as the cornerstone of the blockchain industry, being driven down to $1300 in April, falling below the price at the beginning of this bull market, causing market participants to lament "the faith has been shattered." However, ETH quickly rebounded by 48.80% in July.

EMC Labs believes that the cryptocurrency industry is at a historical turning point, with a complexity of structural changes and hidden trends that insiders have never seen before, thus presenting huge challenges. The factors determining asset prices have undergone a tremendous change, transitioning from the previous cyclical decline in supply and demand and speculation-driven trends to a new asset allocation logic within the chessboard of all types of assets.

We are in the tide of a major industrial change.

Macroeconomic Finance: Inflation Rebound Vs. Disappointing Non-Farm Employment

In July, the US capital market was mainly influenced by the game of three major variables: "When will the Federal Reserve restart interest rate cuts + how will the trade war end + the performance of economic and inflation data." The market was dominated by slightly frenzied forward-looking trading, showing a tendency to actively go long for most of the time, followed by a correction after the end-of-month news exceeded expectations.

The Federal Reserve's restart of interest rate cuts has been dramatic throughout the month. On one hand, Trump has continued to exert extreme pressure on social media, even directly visiting the Federal Reserve to intimidate Chairman Powell with his infrastructure projects exceeding standards; on the other hand, the Federal Reserve adheres to its dual mandate of "inflation + employment," insisting on a data-driven approach, making "hawkish" statements after the FOMC meeting. There is a division within the Federal Reserve, with Governors Waller and Bowman clearly supporting a swift rate cut, while Governor Cook unexpectedly resigned.

After the FOMC meeting on July 31, the FedWatch pricing for the probability of a rate cut in September briefly fell to a low of 41%. However, after the unexpectedly strong non-farm data for July was released on August 1, this probability pricing quickly surged to over 80%.

The S&P 500 has mostly been driven by expectations of a rate cut in September and strong corporate earnings. After July 28, as the probability of a rate cut in September decreased, the market began to adjust after three consecutive months of significant gains. BTC also fell below $115,000, while Altcoins represented by ETH experienced even larger declines.

The Federal Reserve Chairman emphasized in his speech after the FOMC meeting that the impact of tariffs on inflation data may further increase in the next two months.

U.S. PCE data

In July, Trump announced that the tariff rates for more countries indeed exceeded market expectations. After two months of silence, the trade war, which is in the process of winding down, once again became a major factor influencing market pricing.

The current "countervailing tariff" system has a four-layer structure of "10% baseline + 15–41% country gradient + EU special formula + 40% transshipment penalty." The highest tier of 41% mainly targets regions with high geopolitical security risks; the mid-tier of 25–35% is aimed at partners with large trade surpluses, high barriers, and limited negotiation progress; the 10% baseline is widely applicable and serves as a temporary measure against China.

Among the main trading countries/regions, the EU accounts for 15%, Canada 35%, Japan 15%, South Korea 15%, Mexico 10% (general goods)/25% (automobiles, etc.)/50% (steel, aluminum, copper) (still under negotiation), and China 30% (postponed for 90 days pending confirmation). This result exceeded market expectations, increasing concerns about rising inflation, and the market is rebalancing downward around August 1.

In terms of economic and employment data, the overall U.S. economy shows a trend of "relative resilience + relatively strong growth." The U.S. Q2 GDP annual rate released on July 30 was 3%, reversing the negative growth trend of Q1 and exceeding expectations. In the financial reports released by large tech companies in July, it can also be seen that the AI wave is driving large enterprises to increase corporate investment, while AI investments have begun to drive profit growth.

Of course, there are also hidden concerns behind the data, the recovery in consumption remains weak, and overall corporate investment is still sluggish.

The non-farm payroll data for July, released on August 1, dealt a heavy blow to the market, causing a significant decline in U.S. stocks. The data shows that the non-farm employment increased by only 73,000 in July, far below the expected 110,000. In addition, the non-farm data for May was revised down from 144,000 to 125,000, and June was revised down from 147,000 to 134,000, resulting in a total downward revision of 258,000 over the two months. These figures significantly exceeded market expectations, causing panic in the market regarding a "soft landing" and leading to a downward repricing to complete the rebalancing.

Throughout the month, the market surged enthusiastically under the expectations of interest rate cuts and a soft landing in the economy, but the tariff rates and non-farm employment data released at the end of the month "heavily impacted" the market's downward pricing.

For the entire month, the Nasdaq, S&P 500, and Dow Jones indexes increased by 3.7%, 2.17%, and 0.08%, respectively. BTC rose by 8.01%, and ETH increased by 48.8%.

In August, there is still a risk of further downward rebalancing in the US stock market. After the disappointing non-farm payroll data, the probability of a rate cut in September has returned to 80%. However, concerns about a rebound in inflation continue to cloud rate cut expectations. Additionally, while the employment data did not fundamentally impact the overall growth of the US economy for the year, it still poses challenges.

Whether interest rates can be cut as scheduled in September will depend on the inflation and non-farm payroll data to be released in the coming month.

Crypto Assets: BTC Rising Relay, Altseason May Open Up

In July, BTC opened at $107,173.21, closed at $115,761.13, with a low of $105,119.70, hitting a historical high of $123,231.07 during the month, with a monthly increase of 8.01%, a volatility of 16.9%, and trading volume significantly increased compared to June.

BTC Price Daily

In the June report, we pointed out that BTC oscillated for 8 months at the "Trump Bottom" (purple area in the above image), with ample turnover, and that Q3 is equipped to initiate the fourth wave of market conditions. The market broke through this area as expected in July and continued to surge for several trading days. However, starting in mid-July, with long positions, especially ancient whales selling off, coupled with a turbulent macro financial environment, the BTC price was unable to sustain its rise and entered another phase of consolidation.

From a technical indicator perspective, BTC is still operating above the 60-day moving average and the first bullish ascending trendline (green dotted line in the above figure), with monthly trading volume increasing, currently in a new round of upward continuation.

From a monthly perspective, the MACD fast and slow lines are still in the expansion phase, indicating that the market is still in a strong upward momentum.

In terms of contracts, the position size has continued to rise from the beginning to the end of the month, indicating strong market enthusiasm for going long. However, starting from the end of the month, both the position size and funding rates have shown a significant decline, as a certain amount of leveraged funds have chosen to exit the market to avoid risks in the context of increased uncertainty.

Another important event in July is that there seems to be signs of a renewed Altseason within the crypto market. Driven by strong corporate purchases, ETH rose by 48.8% in a single month, and the ETH/BTC trading pair broke through technical resistance. We believe that with the proximity of interest rate cuts and an increase in risk appetite, a renewed Altseason is highly likely.

Chip structure: Long cycle hand starts the third round of selling.

With the buying power arriving in July, the long-handed group has initiated the third wave of selling in this bull market.

Long and short positions and changes

According to eMerge Engine data, long positions reduced their holdings by nearly 200,000 BTC in July, which includes 80,000 from a wallet that originated during the Satoshi Nakamoto era. Correspondingly, short positions also rose rapidly.

BTC has flowed from long positions to short positions, increasing short-term liquidity in the market, which exerts pressure on prices. However, it can be observed that the short-term sell-off by ancient whales has much less impact on market prices compared to the past, indicating that with changes in market participation structure, market depth has significantly increased.

Centralized exchanges continue to see an outflow of BTC (over 40,000 coins), indicating that institutional buying is still ongoing. Institutional allocation is the direct driving force behind the price rise of BTC in this round of the bull market.

As of the end of July, the total amount of BTC directly held by listed companies has exceeded 4.5% of the total supply.

Company Holdings BTC Scale Statistics

Since the beginning of this year, the scale of direct purchases of BTC by listed companies and other institutions to include in their treasury has surpassed that of the BTC Spot ETF channel, officially making them the largest buyers in the BTC market.

Capital Flow: Over $29.5 billion inflow, making it the second largest month in history.

This month, a total of over $29.5 billion has flowed into the cryptocurrency market, including $12 billion in stablecoins, $11.3 billion in BTC+ETH Spot ETFs, and $6.2 billion in corporate purchases. Corporate purchases are the single largest source of measurable buying power in the BTC market.

Monthly Statistics of Capital Flow in the Crypto Market

A total of $29.5 billion inflow made July the second-largest inflow month in history, providing the material support for BTC to break through an 8-month consolidation area, absorbing significant selling pressure to push the price to a new all-time high.

It is worth noting that total capital inflow has increased for five consecutive months, driving BTC to continue rising from the six-month low reached in April and set a new all-time high.

US companies' allocation to BTC is still accelerating, with more and more companies joining in. It is expected that for a period of time in the future, this will remain the most important factor driving the price up.

In addition, this month, the inflow of funds into the ETH Spot ETF reached $5.298 billion, marking the highest month on record, approaching the $6.061 billion channel of the BTC Spot ETF. Behind this is the proximity of interest rate cuts and the further expansion of crypto assets in the U.S., leading to more capital flowing into ETH. At the same time, the number of companies holding ETH is also increasing, and by the end of the month, these companies held 2.6% of the total circulating supply of ETH. Although this is still lower than BTC's 4.6%, the growth rate is rapid, and the pricing power of ETH is also shifting from on-chain to off-chain.

Conclusion

The eMerge Engine shows that the BTC Metric is 0.75, indicating that BTC is in a bullish uptrend.

From a multi-dimensional analysis, BTC is still in the consolidation phase of the fourth wave of this bull market, and after the volatility in August, it is highly likely to continue moving upwards.

Led by ETH, as interest rate cuts approach, the overall market risk appetite is rising, and Altseason is likely to open.

The trade war conflict, US inflation, and employment data pose the biggest tail risks.