The 2025 second half of the year macro turning point in the crypto market: Q3 rally comes to an end, Q4 enters a re-pricing zone

2025 Third Quarter holds a pivotal significance for the crypto market: it inherits the rebound of risk assets since July and further confirms a macro turning point after the September rate cut. However, entering the fourth quarter, the market faces simultaneous shocks from macro uncertainties and structural risks within the crypto sector itself. The market rhythm sharply reverses, breaking previous optimistic expectations.

As inflation slows down, combined with the longest-ever federal government shutdown in October and escalating fiscal disputes, the latest FOMC minutes explicitly signal “caution against premature rate cuts,” causing severe swings in policy expectations. The clear narrative that “rate cut cycle has begun” is quickly weakened, as investors reassess risks such as “prolonged high interest rates” and “soaring fiscal uncertainty,” significantly increasing volatility in risk assets. In this environment, the Federal Reserve deliberately suppresses market over-optimism to avoid premature loosening of financial conditions.

Simultaneously, rising policy uncertainty and the prolonged government shutdown intensify macro pressure, creating dual compression on economic activity and financial liquidity:

• GDP growth is notably dragged down: the Congressional Budget Office estimates that the shutdown will lower Q4 2025 real GDP growth annualized rate by 1.0%–2.0%, resulting in tens of billions of dollars in economic loss.
• Key data missing & liquidity tightening: the shutdown prevents timely release of critical data such as non-farm payrolls, CPI, PPI, plunging the market into a “data blind spot,” complicating policy and economic judgments; also, federal spending interruption passively tightens short-term liquidity, pressuring risk assets broadly.

By November, debates within the US stock market regarding whether AI sector valuations are excessively high intensify, with increased volatility in high-valuation tech stocks, impacting overall risk appetite and making it harder for crypto assets to benefit from US equity beta spillovers. Although risk appetite was significantly boosted in Q3 by early rate cut expectations, this “liquidity optimism” weakens in Q4 due to government shutdown and recurring policy uncertainties, leading risk assets into a new re-pricing phase.

Alongside rising macro uncertainties, the crypto market faces structural shocks of its own. Between July and August, Bitcoin and Ethereum hit historic highs (Bitcoin above $120,000; Ethereum around $4,956 at August end), with market sentiment temporarily optimistic.

However, the large-scale Binance liquidation event on October 11 became the industry’s most severe systemic shock:

• As of November 20, both Bitcoin and Ethereum experienced significant pullbacks from their peaks, market depth weakened, and bullish-bearish divergences widened.
• The liquidity gap caused by liquidations eroded overall market confidence, with initial Q4 depth declining sharply, while spillover effects increased price volatility and counterparty risk.

Meanwhile, inflows into spot ETFs and crypto stocks (DATs) slowed markedly in Q4, institutional buying weakened, unable to hedge liquidation pressures, causing crypto markets to gradually shift into high-turnover, oscillating phases since late August, eventually leading to a clear correction.

Reviewing Q3, the rally in crypto was partly driven by rising risk appetite and partly by active institutional adoption of DAT (Digital Asset Treasury) strategies. These boosted institutional acceptance of crypto allocations, improved liquidity structures for some assets, and became a core narrative for the quarter. However, as liquidity tightened and prices declined in Q4, the sustainability of DAT-related buying waned.

The essence of DAT strategies is firms incorporating tokens into their balance sheets, leveraging on-chain liquidity, yield aggregation, and staking tools to enhance capital efficiency. As more listed companies and funds seek partnerships with stablecoin issuers, liquidity protocols, or tokenization platforms, this model is transitioning from conceptual exploration to operational implementation. During this process, assets like ETH, SOL, BNB, ENA, HYPE reveal a trend of boundary fusion between “tokens—equity—assets,” demonstrating the role of digital asset treasuries as bridges within macro liquidity cycles.

However, current valuation frameworks related to DAT, such as mNAV, are generally below 1, indicating discounts on net asset value of on-chain assets. This reflects investor concerns over liquidity, yield stability, and valuation sustainability, and implies that asset tokenization faces short-term adjustment pressures.

On the sector level, several segments demonstrate sustained growth momentum:

• Stablecoins’ market cap continues to expand, surpassing $2970 billion, strengthening their role as macro uncertainty anchors.
• Perpetuals (Perp) represented by HYPE and ASTER show increased activity through structural innovations (on-chain matching, funding rate optimization, layered liquidity), becoming major beneficiaries of capital rotation within the quarter.
• Prediction markets regain activity amid macro expectations fluctuations, with Polymarket and Kalshi setting volume records, serving as immediate indicators of market sentiment and risk appetite.

This rise indicates capital shifting from simple price betting to structured allocations centered on “liquidity efficiency—returns generation—information pricing.”

Overall, the dislocation in the rhythm of crypto and US equity markets in Q3 2025 translates into concentrated macro risk exposure and liquidity pressures in Q4. Government shutdown delays macro data releases and increases fiscal uncertainty, undermining confidence; debates around AI sector valuations boost volatility, while Binance liquidation impacts liquidity directly. Meanwhile, slowed DAT fund flows and mNAV dropping below 1 highlight institutional sensitivity to liquidity conditions, revealing fragility. Whether markets stabilize depends on how quickly liquidation impacts are digested and whether liquidity and sentiment can gradually recover amid widening bullish-bearish divergences.

Rate cut expectations materialize, markets reprice

In Q3 2025, the key macro variable isn’t the rate cut event itself but the process of expectation formation, trading, and depletion. Market pricing of liquidity turning points began as early as July, with actual policy actions serving primarily as verification nodes.

After two quarters of debate, the Fed in September cut the federal funds rate target by 25bps to 4.00%–4.25%, followed by a slight further cut in October. However, since market bets on rate cuts were already highly consensus-driven, the policy move had limited marginal impact on risk assets, with signals largely priced in beforehand. Meanwhile, slowing inflation and resilient economy prompted the Fed to express concerns about “market pre-pricing of continuous cuts in 2026,” causing the probability of a further December cut to drop sharply after October. This communication became a new factor weighing on risk appetite.

In Q3, macro data showed signs of “moderate cooling”:

• Core CPI annual rate declined from 3.3% in May to 2.8% in August, confirming inflation slowdown;
• Non-farm payrolls increased less than 20,000 for three consecutive months;
• Job vacancy rate fell to 4.5%, the lowest since 2021.

These data suggest the US economy is not in recession but in a gentle slowdown, providing the Fed with room for “manageable rate cuts.” Consequently, the market had formed a “certain rate cut” consensus as early as early July.

CME FedWatch indicated that by late August, the market priced in over 95% probability of a 25bps September cut, almost fully front-running expectations. Bond markets reflected this:

• 10-year US Treasury yields fell from about 4.4% at the start of the quarter to 4.1% at quarter-end;
• 2-year yields dropped more, by about 50bps, indicating concentrated bets on policy shifts.

The macro shift in Q3 was more about “expectation digestion” than actual policy change. Liquidity recovery was largely priced in July–August, with September rate cuts being a formal confirmation of existing consensus. For risk assets, the new marginal variable shifted from “whether to cut” to “pace and sustainability of cuts.”

Once the rate cuts occurred, the marginal effect of expectations was exhausted, and the market quickly entered a “catalyst-less” vacuum phase.

Since mid-September, macro indicators and asset prices showed clear deceleration:

• US bond yields flattened: by September-end, the 10Y–3M spread was only about 14bps, indicating reduced term premium but no more inversion risk.
• US dollar index retreated to 98–99, weakening significantly from early year’s peak (107), though dollar funding costs remained tight at quarter-end settlement.
• US equities experienced marginal liquidity contraction: Nasdaq continued upward, but ETF inflows slowed, and volume growth stagnated, showing institutions adjusting risk exposure at high levels.

This “expectation realization vacuum” became the most characteristic macro phenomenon of the quarter. Markets traded “rate cut certainty” in the first half, then priced in “growth slowdown reality” in the second half.

The Fed’s dot plot (SEP) released in September revealed internal divergence about future policy rates:

• The median forecast for end-2025 policy rate was lowered to 3.9%;
• The forecast range was 3.4%–4.4%, reflecting divided views on inflation stickiness, economic resilience, and policy space.

Following September’s cut and October’s slight further cut, the Fed’s tone shifted toward cautiousness to prevent premature easing. As a result, the high-probability December rate cut expectation has fallen significantly, and policy paths have reverted to a “data-dependent” rather than “pre-set pace” framework.

Unlike previous “crisis-style easing,” this rate cut cycle is a controlled pace adjustment. The Fed continues to shrink its balance sheet, signaling “stabilizing capital costs and suppressing inflation expectations,” emphasizing balancing growth and prices rather than active liquidity expansion. In other words, the rate turning point is set, but the liquidity turning point remains ahead.

In this context, markets show clear differentiation. Lower funding costs support valuation for some high-quality assets, but broad liquidity has not expanded significantly, leading to cautious capital allocation.

• Assets with stable cash flows and earnings (AI, tech blue chips, some DAT US stocks) continue valuation recovery;
• Highly leveraged, high-valuation, or cash-flow-unsupported assets (including some growth stocks and non-mainstream tokens) weaken after expectations are fulfilled, with trading activity declining.

Overall, Q3 2025 is a “expectation realization” phase rather than a “liquidity release” period. Markets priced in rate cut certainty early, then shifted focus to reassessing growth slowdown. Premature expectation depletion keeps risk assets high but lacking upside momentum. This macro pattern sets the stage for subsequent structural divergence, explaining the “breakout–pullback–high oscillation” in Q3: funds flow toward more stable, cash-flow-verified assets rather than systemic risk assets.

Rate cut expectations materialize, markets reprice

The third quarter of 2025 saw the macro environment’s key variable not as the rate cut event itself but as the formation, trading, and depletion of rate cut expectations. Pricing of liquidity inflection points began as early as July, with actual policy moves serving mainly as validation points.

After two quarters of debate, the Fed in September lowered the federal funds rate by 25bps to 4.00%–4.25%, with a further slight cut in October. However, since market bets were already highly consensus, the policy move’s marginal impact on risk assets was limited, with signals largely priced in. Meanwhile, slowing inflation and resilient economy prompted the Fed to voice concerns about “market pre-pricing of persistent cuts in 2026,” causing the probability of a December cut to fall sharply after October. This communication added a new variable weighing on risk appetite.

In Q3, macro data showed a “mild cooling” trend:

• Core CPI annual rate declined from 3.3% in May to 2.8% in August, confirming inflation slowdown;
• Non-farm payrolls added fewer than 20,000 jobs for three months;
• Job vacancy rate fell to 4.5%, the lowest since 2021.

These data indicate the US economy is not in recession but in a gentle deceleration, leaving room for “manageable rate cuts.” Consequently, the market had an early consensus on “certain rate cuts” as early as July.

CME FedWatch showed that by late August, the market priced in over 95% probability of a 25bps September cut, almost pre-empting expectations. Bond markets reflected this:

• 10-year yields fell from 4.4% to 4.1% over the quarter;
• 2-year yields dropped about 50bps, indicating concentrated bets on policy shifts.

The macro shift in Q3 was more about “expectation digestion” than actual policy change. Liquidity was largely priced in July–August; September rate cuts confirmed existing consensus. For risk assets, the new marginal variable shifted from “whether to cut” to “pace and sustainability.”

Once rate cuts occurred, the expectations’ marginal impact was exhausted, and markets entered a “no new catalysts” vacuum.

Since mid-September, macro indicators and asset prices showed marked deceleration:

• US bond yields flattened: by September-end, the 10Y–3M spread was roughly 14bps, indicating reduced term premium but no inversion risk.
• US dollar index retreated to 98–99, weakening from the early-year high (107), though dollar funding costs remained tight at quarter-end.
• US equity market liquidity marginally contracted: Nasdaq rose further, but ETF inflows slowed, and trading volumes stagnated, indicating institutions began risk adjustments at high levels.

This “expectation fulfillment vacuum” became the most significant macro phenomenon of the quarter. Markets traded “certainty of rate cuts” early, then priced in “growth slowdown reality” later.

The Fed’s September dot plot showed clear internal divergence:

• The median policy rate forecast for end-2025 was lowered to 3.9%;
• The forecast range was 3.4%–4.4%, reflecting divided views on inflation persistence, economic resilience, and policy space.

After September’s cut and October’s slight further cut, the Fed’s tone shifted to cautiousness to prevent financial conditions from easing prematurely. Consequently, the high-probability December cut expectation declined sharply, reverting policy to a “data-dependent” approach.

Unlike earlier “crisis easing,” this rate cut cycle is a manageable adjustment. The Fed is shrinking its balance sheet while signaling “stabilizing costs and anchoring inflation expectations,” balancing growth and prices without actively expanding liquidity. The rate pivot is set; the liquidity pivot is yet to come.

Market differentiation is evident: lower financing costs support valuation for quality assets, but broad liquidity has not expanded much, leading to cautious capital deployment.

• Assets with steady cash flows (AI, tech blue chips, some DAT US stocks) continue valuation recovery;
• High-leverage, high-valuation, or non-cash-flow assets (growth stocks, fringe tokens) weaken after expectations are fulfilled, with reduced trading activity.

In sum, Q3 2025 is a “expectation fulfillment” period rather than a “liquidity expansion” one. Markets priced in rate cut certainty early, then shifted to growth slowdown reassessment. The early expectation depletion keeps risk assets high but without sustained upside, setting the macro foundation for later sectoral divergence and explaining the “breakout–retracement–oscillation” trend of Q3: capital flows favor stable, cash-flow-backed assets over systemic risk assets.

Rate cut expectations materialize, markets reprice