Federal Reserve Rate Cut Night, the real game is Trump's "currency夺权"

Tonight will bring the most anticipated Federal Reserve rate cut decision of the year.

The market widely expects a rate cut almost guaranteed. But what truly determines the trajectory of risk assets in the coming months is not just another 25 basis point cut, but a more critical variable: whether the Fed will reintroduce liquidity into the market.

Therefore, this time, Wall Street is watching not the interest rate, but the balance sheet.

According to expectations from institutions like US Bank, Vanguard, PineBridge, the Fed may announce this week that starting from January next year, it will initiate a monthly short-term bond purchase program of $45 billion as part of a new round of “reserve management operations.” In other words, this suggests that the Fed might be quietly restarting a phase of “de facto balance sheet expansion,” allowing the market to enter a period of liquidity easing even before the rate cuts.

But what truly makes the market nervous is the background behind this scene—the United States is entering an unprecedented period of monetary power restructuring.

Trump is taking control of the Federal Reserve in a way far faster, deeper, and more thorough than anyone expected. It’s not just about replacing the chair, but about redefining the boundaries of monetary authority, shifting control over long-term rates, liquidity, and the balance sheet from the Fed back to the Treasury. The decades-old “institutional norm” of central bank independence is quietly loosening.

This is also why, from the Fed’s rate cut expectations to ETF fund flows, from MicroStrategy and Tom Lee’s contrarian accumulation, all seemingly disparate events are converging under a common underlying logic: the U.S. is entering a “fiscal-led monetary era.”

And what impact will these developments have on the crypto markets?

MicroStrategy’s moves are intensifying

Over the past two weeks, nearly the entire market has been discussing the same question: can MicroStrategy withstand this round of decline? Skeptics have simulated various scenarios where this company might “fail.”

But Saylor clearly doesn’t think so.

Last week, MicroStrategy added about $963 million worth of Bitcoin, specifically 10,624 BTC. This was his largest purchase in recent months, even surpassing the total of his acquisitions over the past three months.

It’s important to note that the market had long speculated that when MicroStrategy’s mNAV approached 1, it might be forced to sell Bitcoin to avoid systemic risk. Yet, just as the price neared almost 1, Saylor not only held firm but also increased his holdings, and by a significant margin.

Meanwhile, the ETH camp is also performing a remarkable contrarian move. Tom Lee’s firm, BitMine, continued to raise funds via ATM (at-the-market) offerings despite ETH’s price plunging and the company’s market value retracing 60%. They raised a substantial amount of cash and last Monday purchased $429 million worth of ETH, pushing their holdings to $12 billion.

Even with BMNR’s stock dropping over 60% from its peak, the team kept tapping ATM to raise funds and continued buying aggressively.

CoinDesk analyst James Van Straten commented more straightforwardly on X: “MSTR can raise $1 billion in a week, while in 2020, it took four months to reach the same scale. The exponential trend continues.”

In terms of market influence, Tom Lee’s moves are even more “heavy” than Saylor’s. Since BTC’s market cap is five times that of ETH, Lee’s $429 million purchase is equivalent to Saylor’s $1 billion BTC buy in terms of relative impact.

No wonder the ETH/BTC ratio has begun to rebound, breaking free from a three-month downtrend. History has repeated countless times: whenever ETH leads a rebound, the market enters a short but fierce “altcoin bounce window.”

BitMine now holds $1 billion in cash, and ETH’s recent correction zone is exactly the optimal position for significantly lowering costs. In a market with generally tight liquidity, having institutions capable of continuous firepower is itself part of the price structure.

ETF Outflows Are Not a Flight, But a Temporary Withdrawal of Arbitrage Positions

On the surface, the past two months saw nearly $4 billion flowing out of Bitcoin ETFs, with prices dropping from around 125,000 to 80,000, leading to a rough conclusion: institutions are retreating, ETF investors are panicking, and the bull market structure is collapsing.

But Amberdata offers a very different explanation.

These outflows are not “value investors fleeing,” but rather “leveraged arbitrage funds forced to unwind.” The main source is the breakdown of a structured arbitrage strategy called “basis trade.” Originally, funds earned stable spreads by “buying spot and shorting futures,” but since October, the annualized basis has fallen from 6.6% to 4.4%, with over 93% of trading days below the breakeven point, turning arbitrage into losses and forcing strategies to unwind.

This triggered a “dual action” of ETF selling and futures covering.

In traditional terms, capitulative selling usually occurs in an extremely emotional environment after a prolonged decline, where panic peaks and investors abandon all holdings, characterized by widespread redemptions, soaring trading volume, costless sell-offs, and extreme sentiment indicators. But the ETF outflows this time do not fit that pattern. Despite overall net outflows, the flow directions are not uniform: for example, Fidelity’s FBTC continued inflows throughout, while BlackRock’s IBIT absorbed some incremental funds even during the most severe net outflows. This indicates that only a few issuers are truly retreating, not the entire institutional group.

More critical is the distribution of outflows. From October 1 to November 26, over 53 days, Grayscale’s funds contributed over $900 million of redemptions, accounting for 53% of total outflows; 21Shares and Grayscale Mini followed, together making up nearly 90% of redemptions. In contrast, BlackRock and Fidelity—market’s most typical institutional channels—showed overall net inflows. This pattern is inconsistent with a “panic institutional retreat,” and more resembles a “partial event.”

So, which types of institutions are selling? The answer: large funds engaged in basis arbitrage.

Basis trading is essentially a market-neutral arbitrage strategy: buying spot Bitcoin (or ETF shares) while shorting futures to earn the contango yield. This is a low-risk, low-volatility strategy that attracts large institutional capital when futures are reasonably priced with stable spreads. But this model depends on a key premise: futures prices must stay above spot prices, and the spread must remain stable. Since October, that premise has disappeared.

According to Amberdata, the 30-day annualized basis has compressed from 6.63% to 4.46%, with 93% of trading days below the breakeven threshold of 5%. This means these trades are no longer profitable, even incurring losses, forcing funds to exit. The rapid collapse of basis has caused a “systemic liquidation”: they had to sell ETF holdings and buy back previously shorted futures to close their arbitrage positions.

Market data clearly shows this process. The open interest in Bitcoin perpetual contracts declined by 37.7% during the same period, reducing over $4.2 billion, with a correlation coefficient of 0.878 with basis change—almost synchronized moves. The combination of ETF selling and short covering is the typical path of basis trade unwinding; the sudden expansion of ETF outflows is not driven by price panic but by the collapse of the arbitrage mechanism.

In other words, the ETF outflows over the past two months are more like “leverage-driven deleveraging,” not “long-term institutional withdrawal.” It’s a highly professional, structured trade breakdown rather than panic selling caused by market sentiment collapse.

Even more noteworthy is the distribution of remaining funds after the unwind. Currently, ETF holdings still amount to about 1.43 million BTC, primarily held by institutional allocators rather than short-term traders chasing spreads. With the leverage hedges of arbitrage positions removed, the overall market leverage declines, sources of volatility diminish, and price behavior will be driven more by “genuine buying and selling” rather than forced technical trades.

Amberdata’s chief researcher Marshall describes this as a “market reset”: after the arbitrage unwinding, new ETF inflows tend to be more directional and long-term, reducing structural noise and making subsequent moves more reflective of real demand. This means that although it looks like a $4 billion fund outflow on the surface, it might not be bad for the market itself. On the contrary, it could lay the groundwork for a healthier next wave of rallies.

If Saylor, Tom Lee, and ETF flows reflect micro-level sentiment, then the macro-level changes underway are even deeper and more intense. Will Santa Claus rally happen? To answer that, we might need to look further into the macro landscape.

Trump’s “Control” Over the Monetary System

For decades, the Fed’s independence has been regarded as an “institutional iron law.” Monetary power belongs to the central bank, not the White House.

But Trump clearly disagrees.

Increasing signs show that Trump’s team is taking control of the Federal Reserve in a way far faster and more thorough than market expectations. It’s not just symbolic “replacing a hawkish chair,” but rewriting the power distribution between the Fed and the Treasury, changing the balance sheet mechanism, and redefining the pricing of the yield curve.

Trump is attempting to reconstruct the entire monetary system.

Joseph Wang, a former NY Fed trading desk chief and long-time researcher of Fed operations, explicitly warned: “The market is significantly underestimating Trump’s determination to control the Fed, and such changes could push markets into a higher risk, higher volatility phase.”

From personnel arrangements, policy directions to technical details, clear traces are visible.

The most direct evidence comes from personnel. Several key figures aligned with Trump have been placed in core roles, including Kevin Hassett (former White House economic advisor), James Bessent (a key decision-maker at the Treasury), Dino Miran (fiscal policy think tank), and Kevin Warsh (former Fed governor). A common trait among them: they are not traditional “central bank advocates” and do not insist on Fed independence. Their goal is very clear: weaken the Fed’s monopoly on interest rates, long-term funding costs, and systemic liquidity, and transfer more monetary authority back to the Treasury.

A highly symbolic point is that Bessent, widely regarded as the most suitable candidate to succeed Powell as Fed chair, ultimately chose to stay in the Treasury. The reason is simple: in this new power structure, the Treasury’s position can more decisively influence the rules of the game than the Fed chair.

Another crucial clue lies in the change of the term premium.

For ordinary investors, this indicator might seem unfamiliar, but it’s actually the most direct signal of “who controls long-term interest rates.” Recently, the spread between 12-month and 10-year Treasuries has approached recent highs, not because of improved economic outlook or rising inflation, but as the market re-evaluates: the future determinants of long-term rates might not be the Fed, but the Treasury.

10-year and 12-month Treasury yields are continuing to decline, indicating markets strongly bet on Fed rate cuts, and the pace will be faster and more aggressive than previously expected

SOFR (Secured Overnight Financing Rate) experienced a cliff dive in September, indicating a sudden collapse in U.S. money market rates and a significant loosening of the Fed’s policy rate system

The initial rise in the spread was because markets believed Trump’s election would overheat the economy; later, tariffs and large-scale fiscal stimulus were absorbed, causing the spread to quickly retreat. Now, the spread is rising again, reflecting not growth expectations but uncertainty about the Hassett–Bessent system: if the Treasury adjusts debt durations, issues short-term debt, and compresses long-term debt to control yields, the traditional methods for judging long-term interest rates will become entirely invalid.

Even more subtle but crucial evidence is the asset-liability management system. Trump’s team frequently criticizes the current “ample reserves system” (where the Fed expands its balance sheet and provides reserves to banks, making the financial system highly dependent on the Fed). But at the same time, they are well aware that current reserves are already tight, and the system actually needs to expand its balance sheet to maintain stability.

This contradiction—“opposing balance sheet expansion but compelled to do so”—is in fact a strategic move. They use it as a rationale to question the Fed’s institutional framework and push more monetary power back to the Treasury. In other words, they are not aiming for immediate balance sheet shrinking but want to use the “balance sheet controversy” as a breakthrough to weaken the Fed’s institutional standing.

Put these actions together, and a very clear direction emerges: term premium is being compressed, U.S. debt durations shortened, long-term interest rates gradually losing independence; banks may be required to hold more Treasuries; government-sponsored entities might be encouraged to leverage further in mortgage bonds; the Treasury may issue more short-term debt to influence the entire yield curve. Key prices historically set by the Fed will gradually be replaced by fiscal tools.

The likely outcome of this process is: gold enters a long-term upward trend, stocks stabilize after oscillations with a slow push structure, and liquidity gradually improves due to fiscal expansion and repurchase mechanisms. Short-term markets may appear chaotic, but that’s just because the monetary system’s power boundaries are being redrawn.

As the underlying of the system is rewritten, all prices will behave more “illogically” than usual. But this is a necessary stage of loosening the old order and ushering in the new one.

The coming months’ market movements are very likely to emerge in this chaos.