The market is always full of twists and turns. Bitcoin, which had just reached a new high, didn’t have time to celebrate before dropping nearly $10,000 in just four days, with further declines looming. Ethereum, the recent standout, wasn’t far behind—its upward momentum was abruptly cut short, falling from $4,788 to below $4,300. The more volatility-sensitive altcoin market was once again drained, with most tokens dropping over 15%, cooling off the restless altcoin sector once more.

The reasons for price increases are often unclear, but when it comes to declines, there’s always news behind it.

In fact, since the beginning of this year, the key driver of market trends has been U.S. monetary policy. Expectations have played out vividly in the crypto market: rising rate-cut expectations push the market up, while fading expectations drag it down. Against this backdrop, whether rates will be cut, by how much, and how they’ll be cut have become the most closely watched questions for market observers.

Looking back, the rate-cut debate in the U.S. has been nothing short of a political drama.

After three years of tightening, the U.S. has seen significant results. Regardless of external complaints, inflation is gradually coming under control. While Biden’s direct cash handouts to improve household balance sheets initially challenged inflation, the shift of debt from households to the government ultimately facilitated a soft economic landing.

However, the tightening cycle, originally expected to end this year, was disrupted by Trump’s tariff wars. The Fed found itself in a dilemma: on one hand, balancing GDP contraction and high inflation; on the other, maintaining flexibility to respond to the president’s subsequent policies. Thus, the standoff between Trump and the Fed took shape.

Trump, furious, took to social media, accusing the Fed of cutting rates too late and threatening to oust Powell. He even sought to install his own allies at the Fed, pulling out the "succession plan" card. Powell, however, stood his ground, firing back with "he has no authority to fire me," emphasizing that CPI and inflation are the core determinants.

Since data is key, Trump turned his attention to it. In August, Trump fired Labor Statistics Bureau Commissioner Erica McEntarfer, claiming official data had been deliberately altered to favor Biden. Earlier that month, the bureau’s jobs report showed just 73,000 nonfarm jobs added in July—far below the expected 102,000—significantly raising recession fears. On August 11, Trump nominated Anthony, a conservative economist from the Heritage Foundation, as the new commissioner. Unsurprisingly, the nominee is a Biden opponent.

Replacing data chiefs, nominating Fed governors, and repeatedly calling for Powell’s resignation—all this underscores Trump’s urgency for rate cuts. For him, it’s not just an economic issue but a political one. The tightening cycle has weighed on stocks and the crypto cash cow, and combined with tariff impacts, Trump desperately needs to boost confidence to lift his approval ratings and deflect public frustration. For him, this is the most logical approach.

The chaos has had an effect. The once-unified Fed is now showing deepening divisions. Since July, Fed governors Christopher Waller and Michelle Bowman have voted against holding rates steady, advocating for an immediate 25-basis-point cut—the first time in over 30 years two governors dissented simultaneously. More recently, San Francisco Fed President Mary Daly and Chicago Fed President Austan Goolsbee both cautioned against rushing into cuts. These divisions reflect growing odds of a cut. By August, after the Labor Department’s disappointing jobs report, investor expectations for a September cut surged. CME data shows expectations stabilized at 84.8% after peaking at 92.1%. In short, while uncertainties remain, the market has largely priced in a September cut.

Back to the markets: On August 14, buoyed by pension fund inflows and rising rate-cut expectations, Bitcoin rallied to a historic high of $125,000, while Ethereum, fueled by institutional buying, soared even higher to $4,788. With a near-certain cut on the horizon, why the subsequent drop?

It’s still about expectations. While the probability of a September cut rose, the full-year frequency of cuts fell from three to two due to July’s hotter-than-expected PPI, with the total reduction shrinking from 100 bps to 50 bps—or even 25 bps in pessimistic scenarios. This shocked investors. Notably, while both markets reacted to macro expectations, U.S. stocks showed more resilience, while crypto’s sensitivity to risk amplified its decline.

This Friday, the Jackson Hole央行Symposium will convene in Wyoming, where Fed Chair Powell will deliver a key speech on the economic outlook. The event is closely watched, as Powell has repeatedly used it to signal major shifts. Three years ago, he warned of "pain" ahead in fighting inflation, sending short-term yields soaring. Last year, he hinted at readiness to cut rates from two-decade highs, triggering a plunge in two-year yields. By September, the Fed began its easing cycle with a 50-bps cut. While markets don’t expect next month’s cut to be derailed, the current political and emotional tensions leave room for surprises. In response, capital is tilting defensive.

Adding to the chill, Treasury Secretary Scott Besant poured cold water on Bitcoin hopes. Back in March, fulfilling a campaign promise, Trump issued an executive order designating Bitcoin as a strategic reserve asset, focusing on existing holdings but proposing budget-neutral purchases. Despite the "neutral" stance, markets hoped a sovereign wealth fund would enter Bitcoin, creating another price pillar. However, Besant recently told Fox Business that the U.S. won’t buy new Bitcoin but will instead use $15–$20 billion in seized coins (from criminal/ civil forfeitures or fines) to build reserves.

The news disappointed crypto markets, briefly sinking Bitcoin. Ironically, hours later, Besant softened his tone on X, stating seized Bitcoin would form the reserve’s foundation and pledging to explore budget-neutral ways to acquire more. While the pivot was swift, skepticism lingered. The episode highlights crypto’s growing political clout—enough to make a Treasury secretary flip 180 degrees.

Another factor in the pullback is leverage unwinding. Before Bitcoin and Ethereum’s peaks, FOMO drove excessive bullish leverage, even as funding rates rose. The lopsided positioning magnified downside risks. On August 14 alone, over $1.02 billion in derivatives positions were liquidated—$872 million long vs. $145 million short. The tug-of-war continues: Coinglass data shows that if Bitcoin breaks $117,000, short liquidations could hit $558 million; below $113,000, long liquidations may reach $690 million.

Overall, the crypto market—already lacking strong upward momentum—succumbed to these pressures post-rally. Bitcoin has fallen 7.79% from its $124,400 peak to $114,700, while Ethereum slid 11.57% from $4,788 to $4,234.

Yet there’s no need for panic. Trading volume and turnover haven’t spiked during Bitcoin’s four-day slide, suggesting sellers are reluctant. Support levels are also firming: per @Phyrex_Ni, Bitcoin’s price floor has seen six upward shifts, with open interest at $117,000 exceeding 750,000 BTC—a solid foundation (though high OI means high risk). Given holder demographics, absent a steep downturn, even temporary breaches won’t trigger mass sell-offs. Externally, expected cuts, regulatory progress, and institutional accumulation all point to continued growth.

In reality, BTC’s drop largely stems from post-high polarization—bullish and bearish forces clashing, with sentiment swinging wildly at minor triggers. Options markets echo this: BTC’s 25 Delta Skew mirrors late March/early April levels, confirming bearish undertones.

Ethereum faces bigger issues. Despite stellar ETF inflows ($2.85 billion last week, a record), its staking queue reveals heavy selling pressure. At press time, 860,286 ETH await validator exits (a record high), while just 290,541 ETH seek to enter staking—signaling growing profit-taking intent. This pressure will mount if prices keep falling.

Rationale suggests that with Jackson Hole ahead, markets will align with its outcomes. For now, absent fresh negatives, technicals hint at consolidation (most analysts see support at $112,000). Pre-Friday, barring surprises, uncontrolled drops are unlikely. Ethereum is weaker, with its nearest CME gap at $4,100–$4,200—a likely target this week.

So, for retail investors, the old adage holds: hedge wisely.