Huobi Growth Academy | Macro Research Report on the Crypto Market: Liquidity Repricing Under the Combined Effects of the Fed's Rate Cut, the Bank of Japan's Rate Hike, and the Christmas Holiday

I. Federal Reserve Rate Cut: The Path of Easing After Rate Reduction

On December 11, the Federal Reserve announced a rate cut of 25 basis points as expected. On the surface, this decision was highly consistent with market expectations and was even interpreted as a signal that monetary policy was beginning to shift towards easing. However, the market reaction quickly turned cold, with U.S. stocks and crypto assets declining in tandem, and risk appetite clearly contracting. This seemingly counterintuitive trend actually reveals a key fact in the current macro environment: a rate cut does not equate to liquidity easing. During this round of Super Central Bank Week, the message conveyed by the Federal Reserve was not "reintroducing liquidity," but rather a clear constraint on future policy space. From the details of the policy, changes in the dot plot have caused a substantial impact on market expectations. The latest forecasts indicate that the Federal Reserve may only implement one rate cut in 2026, significantly lower than the 2 to 3 cuts previously priced in by the market. More importantly, within the voting structure of this meeting, 3 out of the 12 voting members explicitly opposed the rate cut, with 2 advocating for maintaining the current rate. This divergence is not marginal noise but clearly indicates that the Federal Reserve's internal vigilance regarding inflation risks is much higher than the market previously understood. In other words, this rate cut is not the starting point of an easing cycle but rather a technical adjustment to prevent financial conditions from tightening excessively in a high-rate environment.

For this reason, what the market truly expects is not a "one-time rate cut," but a clear, sustainable, and forward-looking easing path. The pricing logic of risk assets does not rely on the absolute level of current rates but rather on the discounted future liquidity environment. When investors realize that this rate cut has not opened up new easing space but may instead lock in future policy flexibility, the original optimistic expectations are quickly revised. The signals released by the Federal Reserve are akin to a "painkiller," providing a temporary relief of tension but not changing the underlying issue; at the same time, the restrained stance revealed in the policy outlook forces the market to reassess future risk premiums. In this context, the rate cut has instead become a typical case of "good news fully priced in." The long positions built around easing expectations began to unwind, with high-valuation assets being the first to feel the pressure. Growth sectors and high-beta segments of the U.S. stock market were the first to come under pressure, and the crypto market was no exception. The pullback of Bitcoin and other mainstream crypto assets was not due to a single negative factor but rather a passive reaction to the reality that "liquidity will not return quickly." When futures basis converges, marginal ETF buying weakens, and overall risk appetite declines, prices naturally gravitate towards a more conservative equilibrium level. Deeper changes are reflected in the shifting risk structure of the U.S. economy. An increasing number of studies point out that the core risk facing the U.S. economy in 2026 may no longer be a traditional cyclical recession but rather a demand-side contraction directly triggered by a significant adjustment in asset prices. After the pandemic, the U.S. has seen a group of approximately 2.5 million people in "excess retirement," whose wealth is highly dependent on the performance of the stock market and risk assets, creating a highly correlated relationship between their consumption behavior and asset prices. Once the stock market or other risk assets experience a sustained decline, the consumption capacity of this group will contract simultaneously, leading to negative feedback on the overall economy. In this economic structure, the Federal Reserve's policy choices are further constrained. On one hand, persistent inflationary pressures remain, and premature or excessive easing could reignite price increases; on the other hand, if financial conditions continue to tighten and asset prices undergo a systemic correction, it could quickly transmit to the real economy through the wealth effect, triggering a demand decline. The Federal Reserve thus finds itself in an extremely complex dilemma: continuing to suppress inflation could trigger a collapse in asset prices, while tolerating a higher inflation level could help maintain financial stability and asset prices.

An increasing number of market participants are beginning to accept a judgment: in future policy games, the Federal Reserve is more likely to choose to "protect the market" at critical moments rather than "protect inflation." This means that the long-term inflation anchor may shift upwards, but the short-term release of liquidity will be more cautious and intermittent, rather than forming a sustained wave of easing. For risk assets, this is an unfriendly environment— the speed of rate decline is insufficient to support valuations, while the uncertainty of liquidity persists. It is against this macro backdrop that the impact of this round of Super Central Bank Week extends far beyond a single 25 basis point rate cut. It marks a further correction in market expectations of the "era of infinite liquidity" and lays the groundwork for the subsequent rate hike by the Bank of Japan and liquidity contraction at the end of the year. For the crypto market, this is not the end of the trend but a critical phase that necessitates recalibrating risk and reinterpreting macro constraints.

II. Bank of Japan Rate Hike: The True "Liquidity Demolition Expert"

If the Federal Reserve's role during Super Central Bank Week was to generate disappointment and corrections regarding "future liquidity," then the action the Bank of Japan is set to take on December 19 is more akin to a "demolition operation" that directly impacts the underlying global financial structure. The current market expectation of a 25 basis point rate hike by the Bank of Japan, raising the policy rate from 0.50% to 0.75%, is nearing a 90% probability. This seemingly mild rate adjustment signifies that Japan will elevate its policy rate to the highest level in thirty years. The key issue is not the absolute value of the rate itself, but the chain reaction this change will cause in the global capital flow logic. For a long time, Japan has been the most important and stable source of low-cost financing in the global financial system. Once this premise is broken, its impact will far exceed the Japanese domestic market.

Over the past decade, a nearly universally accepted structural consensus has formed in global capital markets: the yen is a "permanent low-cost currency." Supported by long-term ultra-loose policies, institutional investors can borrow yen at near-zero or even negative costs, then convert it into dollars or other high-yield currencies to allocate to U.S. stocks, crypto assets, emerging market bonds, and various risk assets. This model is not a short-term arbitrage but has evolved into a long-term funding structure worth trillions of dollars, deeply embedded in the global asset pricing system. Because of its prolonged duration and high stability, yen arbitrage trading has gradually shifted from being a "strategy" to a "background assumption," rarely priced as a core risk variable by the market. However, once the Bank of Japan clearly enters a rate hike path, this assumption will be forced to reevaluate. The impact of a rate hike goes beyond a marginal increase in financing costs; more importantly, it will change market expectations regarding the long-term direction of the yen's exchange rate. When the policy rate rises and inflation and wage structures change, the yen will no longer be merely a financing currency that passively depreciates but may transform into an asset with appreciation potential. Under this expectation, the logic of arbitrage trading will be fundamentally disrupted. The capital flows originally centered on "interest rate differentials" will begin to incorporate "exchange rate risk," rapidly deteriorating the risk-return ratio of funds.

In this situation, the choices facing arbitrage funds are not complex but highly destructive: either close positions early to reduce exposure to yen liabilities, or passively endure the dual pressure of exchange rates and interest rates. For large-scale, highly leveraged funds, the former is often the only viable path. The specific way to close positions is also extremely direct—sell off held risk assets, convert back to yen, and use it to repay financing. This process does not distinguish between asset quality, fundamentals, or long-term prospects but aims solely at reducing overall exposure, thus exhibiting clear characteristics of "indiscriminate selling." U.S. stocks, crypto assets, and emerging market assets often come under pressure simultaneously, forming a highly correlated decline. History has repeatedly validated the existence of this mechanism. In August 2025, the Bank of Japan unexpectedly raised the policy rate to 0.25%. This magnitude is not considered aggressive in traditional terms, yet it triggered a violent reaction in global markets. Bitcoin fell 18% in a single day, and various risk assets faced pressure simultaneously, with the market taking nearly three weeks to gradually recover. The intensity of that shock was due to the sudden nature of the rate hike, forcing arbitrage funds to quickly deleverage without preparation. The upcoming December 19 meeting is different from that previous "black swan" event; it resembles a "gray rhino" that