Expectations for Rate Cuts Strengthened, Fed Liquidity Improves
The U.S. Consumer Price Index (CPI) data released on May 13, 2025, indicated a further moderation of inflation, reinforcing market expectations for potential Federal Reserve rate cuts later this year. Headline CPI rose 2.3% year-over-year (vs. 2.4% expected, 2.6% previous), marking the lowest level since March 2021; core CPI was 2.8% (in line with expectations, 3.0% previous).
Goldman Sachs analysts noted that some U.S. companies had accelerated inventory accumulation prior to the early April implementation of tariffs, temporarily delaying the transmission of higher costs to consumers. Goods prices remained stable month-over-month, with core goods (excluding food and energy) showing a minimal increase of 0.1%, suggesting a limited immediate impact from tariffs. However, retailers have warned about the potential need for future price adjustments. It is also important to note that the Federal Reserve’s preferred inflation gauge, core PCE, stood at 2.3% in March, still above the 2% target.
Market support also stemmed from a phase of expanding macro liquidity. The Federal Reserve’s total assets rose slightly from $6.70 trillion on April 30 to $6.73 trillion in early May. FED Net Liquidity (balance sheet + TGA – RRP) increased from $4.89 trillion to $4.94 trillion over the same period, injecting about $50 billion of net liquidity. Meanwhile, the U.S. Treasury General Account (TGA) balance rose to $583 billion, while the Reverse Repo Facility (RRP) balance dropped to a record low of $78 billion. This improvement in liquidity was mainly driven by the Federal Reserve slowing the pace of QT (reducing Treasury redemptions to $5 billion), the post-tax season Treasury cash inflows, and money market funds reallocating capital out of the RRP.
A significant risk remains, however: should a debt ceiling agreement be reached in July or August, substantial Treasury issuance to replenish the TGA, coupled with an almost depleted RRP buffer, could lead to a tightening of system liquidity once again, potentially exerting downward pressure on risk assets.
Institutional Inflows Power Crypto Rally
Boosted by the improving macro backdrop, crypto market flows rebounded significantly. Bitcoin (BTC) futures open interest (OI) remained at elevated levels, with CME data showing about 660,000 BTC, representing 3.4% of circulating supply, highlighting strong institutional positioning. BTC OI on crypto-native exchanges also rose by 12%, with positions largely concentrated around the $100,000 level. Ethereum (ETH) and Solana (SOL) derivatives markets also saw a strong recovery, with ETH OI rising 15% since the first week of May and SOL rebounding 18% from late April lows. On-chain data showed ETH short-term holder (STH) profit addresses rising to approximately 90% and SOL to 88%, approaching historically high thresholds (>90% usually signals local top risk), raising concerns over near-term profit-taking pressures.
Data from Deribit showed that the near-term implied volatility of Bitcoin options decreased from 65% prior to the CPI release to 58%, reflecting expectations of short-term price stability and encouraging some institutions to sell options to capture premium yields. The ETH options market displayed a longer-dated bullish structure, with strong demand for $4,000-$5,000 call options expiring in December, suggesting institutional investors are positioning early for the next potential rally.
Macro Tailwinds Drive Bullish Bias, But Volatility Risks Linger
In summary, the combination of macro liquidity expansion, cooling CPI strengthening rate-cut expectations, sustained institutional allocation, and a rebound in derivatives market risk appetite has driven the strong May rally in BTC, ETH, and SOL.
However, in the short term, the high percentage of short-term holders in profit and the concentration of leveraged positions imply that any breakout or breakdown of key technical levels could trigger concentrated profit-taking and liquidation cascades, leading to heightened volatility. The overall market structure remains defined by a medium-term structural bull trend combined with a short-term consolidation phase.
SEC Proposes Regulatory Sandbox for Tokenized Securities
Following previous coverage of Trump Media Group’s launch of the DJT token, SEC Commissioner Hester Peirce publicly disclosed that the agency’s digital assets working group is actively drafting a “tokenized securities exemption framework.” According to the draft, this mechanism would allow qualifying companies to issue, trade, and settle tokenized securities via distributed ledger technology (DLT) without undergoing the full traditional SEC registration process.
To ensure compliance and investor protection, the exemption would still be subject to strict requirements: issuers must adhere to anti-fraud and anti-manipulation standards, disclose key information about smart contracts, platform operations, and potential conflicts of interest, undergo SEC supervision, and demonstrate adequate financial reserves. Custody providers would need to implement on-chain security frameworks and disclose custody arrangements. Initially, the program would impose limits on the types and volumes of tokenized securities allowed. If successful, the SEC may gradually expand the scope. If adopted, this framework would provide both legal legitimacy and regulatory innovation for utility tokens like DJT—especially those with political branding, real-world use cases, and high traffic ecosystems.
*The above content is not an investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product.
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HTX DeepThink is a flagship market insights column created by HTX, dedicated to exploring global macro trends, key economic indicators, and major developments across the crypto industry. In a world where volatility is the norm, HTX DeepThink aims to help readers “ Find Order in Chaos.”
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