Kalshi's latest data shows that the market's betting probability on the Federal Reserve remaining unchanged this year has risen to 66.9%.

Written by: Maher, Foresight News

On May 18, Bitcoin continued to fall below $77,000, marking four consecutive daily declines. Ethereum also dropped to around $2,100, with major cryptocurrencies like Solana and XRP experiencing widespread downturns. Coinglass data shows that the total liquidated amount across the network reached $657 million within 24 hours, with $584 million from long positions.

Most of these liquidated positions were built on long bets above $80,000; once the price broke through this psychological barrier, algorithmic trading systems and institutional risk control protocols automatically triggered sell-offs, resulting in a typical liquidity spiral. According to CoinMarketCap data, today's panic index dropped again to 39, indicating a market panic sentiment.

At the macro level, the crypto market is not being spared either. The U.S. 10-year Treasury yield remains around 4.43%, with S&P 500 futures down 0.19% and Nasdaq 100 futures down 0.29%. The Dow Jones index fell by 0.29%. Most of the seven major tech giants in the U.S. have already reported Q1 earnings, with several exceeding expectations (especially in terms of AI-related revenue). NVIDIA's earnings report is scheduled to be released after trading on May 20 (Wednesday).

The situation in the Middle East—particularly the blockade risk of the Strait of Hormuz—is pushing energy prices to new highs. According to Bitget's market data, Brent crude oil has risen to $112.9. The linkage of risk between traditional markets and crypto markets has been vividly demonstrated this week: when expectations of USD liquidity tighten, Bitcoin's properties as a high-risk asset are magnified infinitely, rather than its "digital gold" safe-haven function.

No Hope for Fed Rate Cuts

The core macro driver behind this round of decline is the market's complete re-evaluation of the Federal Reserve's monetary policy expectations. At the FOMC meeting that ended on May 1, the Federal Open Market Committee voted 10 to 2 to keep the federal funds rate unchanged in the range of 3.50% to 3.75%. More critically, this is the meeting with the most dissent since October 1992—three regional Fed presidents publicly opposed the implied "bias towards rate cuts" in the post-meeting statement.

Neel Kashkari

Minneapolis Fed President Neel Kashkari is one of the most representative voices. As a rotating voting member for 2026, Kashkari stated in an interview with CBS's "Face the Nation" on May 3 that due to energy price shocks from the Iranian war, "we all need to keep an open mind about the direction of interest rates. If the situation worsens, we may need to act in the opposite direction"—meaning increasing rates instead of cutting them. He specifically pointed out that the longer the Strait of Hormuz remains closed, the greater the input pressure on U.S. inflation will be, and the Fed must defend the credibility of the 2% inflation target.

Jeffrey Gundlach, CEO of DoubleLine Capital, explicitly stated that the possibility of the Fed cutting rates this year has basically disappeared, as persistent inflation and signals from the interest rate market have collectively blocked the space for monetary easing.

On May 18, Bloomberg reported that during an interview on Fox News' "Sunday Morning Futures," Gundlach pointed out that the market previously expected two rate cuts this year, but inflation data has never cooperated. He bluntly stated, "With the two-year Treasury yield nearly 50 basis points higher than the federal funds rate, rate cuts are just not possible in my view."

Previously, in April, the U.S. CPI surged 3.8% year-on-year, the fastest pace since May 2023, while Gundlach warned that the next CPI data will "start with a 4."

Meanwhile, the Iranian war has pushed oil prices sharply higher, further affecting U.S. inflation data and exacerbating the already challenging price pressures. Gundlach also issued warnings about several market risks, such as high stock valuations and private credit risks, indicating that overall market risks are quietly accumulating.

Additionally, on May 17, Israeli media reported that Israeli Prime Minister Netanyahu spoke with U.S. President Trump that day to discuss the possibility of resuming military actions against Iran. The conversation lasted about half an hour and mainly focused on the potential for restarting military strikes against Iran. This official stated that if the U.S. resumes military actions against Iran, it is expected that the two countries will jointly initiate airstrikes.

Kalshi's latest data shows that the market's betting probability on the Federal Reserve remaining unchanged this year has risen to 66.9%, while the probability of a rate cut has fallen to 17.8%.

For the crypto market, this may signify the official collapse of the "rate cut narrative" that has persisted for more than two years.

In every previous significant rise of Bitcoin, there has been an accompanying expansion of the Fed's balance sheet or a decline in real interest rates; when this liquidity engine shuts down, BTC bulls lose their most reliable macro moat.

CLARITY Act Passes, Good News Fully Priced In

In the early hours of May 15, Beijing time, the U.S. Senate Banking Committee passed the CLARITY Act with a vote of 15 to 9, marking the first legislative effort in U.S. history to establish a comprehensive regulatory framework for digital assets. The bill clearly delineates the jurisdiction of the SEC over token offerings and the CFTC over secondary market trading, ending years of an era characterized by "regulatory oversight through enforcement." Major industry participants like Coinbase and Circle have expressed support for the compromise clauses concerning stablecoin yields.

However, the market's reaction has been a textbook case of "good news fully priced in becoming bad news." Before the bill passed, BTC briefly rose to $82,000, but quickly fell to $78,000 once it was approved.

Moreover, it has since experienced four consecutive daily declines, dropping to as low as $76,735.

Before the bill was passed, regulatory clarity had already been priced in, while the clauses in the bill regarding DeFi developer responsibilities, stablecoin yield restrictions, and anti-money laundering standards effectively increased compliance costs.

From an emotional indicator perspective, this behavior of selling into the good news has been thoroughly validated.

Santiment stated that after the Senate Banking Committee's news of advancing the CLARITY Act, Bitcoin sparked a frenzy on social media. This brought BTC and cryptocurrencies one step closer to final approval. Historical data shows that when the number of bullish comments about cryptocurrency market cap is 1.55 times that of bearish comments, it's advisable to remain cautious. Market movements tend to be contrary to public expectations.

Santiment believes that any initiatives that facilitate the passage of the CLARITY Act should be viewed as positive for cryptocurrencies in the long run, as they may ultimately bring clearer rules to the U.S. cryptocurrency industry. However, it should not come as a surprise if many stocks with the largest market capitalizations have already seen their market values "digested" within a certain range before the CLARITY Act comes into effect.

Institutions View Rebound as Exit Opportunity

On May 14, glassnode reported that the 7-day simple moving average of net inflows for U.S. spot ETFs fell to -$88 million per day, the largest outflow since mid-February. The outflow in February occurred during a period of weak pricing. This wave of selling pressure took place during a strong price surge, with BTC trading close to $80,000.

Institutional participants used the recent rebound as an exit opportunity rather than reacting to fear.

According to SoSoValue data, since May 7, Bitcoin spot ETFs have seen several hundred million dollars in net outflows, with May 13 witnessing a single-day net outflow of $635.23 million, setting a new single-day net outflow high in several months.

With continuous outflows, Bitcoin's price has struggled to rise.

Subsequent Market Outlook

Arthur Hayes, co-founder of BitMEX, stated several days ago that he expects liquidity in the U.S. dollar and Chinese yuan to continue rising, benefiting Bitcoin and cryptocurrencies. Bitcoin bottomed at $60,000 earlier this year and, supported by the imminent creation of trillions of dollars and yuan, regaining $126,000 is now almost a certainty. Many haters will refuse to participate in this Bitcoin rally, as it has significantly lagged behind tech stocks and gold over the past 24 months. Many cannot understand why Bitcoin is still meaningful as a hedge against rampant money printing. However, it will demonstrate its sensitivity to fiat currency liquidity expansion.

Hayes mentioned that he anticipates the rally will intensify, as many bearish option sellers will rush to close positions once Bitcoin breaks $90,000, leading to explosive price trajectories. He is completely unsure of how high Bitcoin can rise, but he will push Maelstrom's portfolio to maximum risk unless there are any drastic changes.

MicroStrategy founder Michael Saylor chose a simpler way to express himself. On May 17, he once again released information related to Bitcoin Tracker.

Weiss Crypto analyst Juan M. Villaverde stated that he does not expect BTC to fall sharply from its current price level, but rather to experience a moderate correction, with the $70,000 support level holding firm. A significant low may occur by the end of July this year.