In-Depth Analysis of the Federal Reserve’s Semi-Annual Monetary Policy Report: Opportunities, Challenges, and Structural Changes in the Crypto Market

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On February 11, 2025, Federal Reserve Chairman Jerome Powell reiterated during a Senate hearing that the core goals of monetary policy remain “maximum employment” and “price stability” (2% inflation target). Powell stated that the Fed is continuously focused on achieving its dual mandate of maximizing employment and stabilizing prices. Overall, the U.S. economy is performing strongly, with significant progress made toward these goals over the past two years. The labor market has cooled from previous overheated conditions but remains robust. Inflation has significantly decreased, nearing the 2% target, though still slightly above this level. The Fed is closely monitoring risks to both parts of its dual mandate.

Key Takeaways from Powell’s Report:

Employment Market: The unemployment rate in January stood at 4%, with the average monthly job increase over the past four months being 189,000. Labor supply and demand have balanced out, with wage growth slowing to 3.2% (down from a peak of 5.1% in 2024).
Inflation: Core PCE inflation is at 2.8%, still above the 2% target, with food and energy prices being the main contributors to inflationary pressure.

Powell’s report provides highly instructive insights into the direction of the cryptocurrency market, including changes in risk appetite and liquidity management expectations.

Powell’s report offers several key insights into the future direction of the crypto market, including shifts in risk appetite and liquidity management expectations:

Risk Appetite Divergence: If the Fed delays interest rate cuts due to persistent inflation, risk assets (such as meme coins and highly leveraged DeFi protocols) could be suppressed. However, Bitcoin, as an “inflation hedge” narrative asset, may benefit from capital flight seeking safety.
Liquidity Management Expectations: The Fed has already cut interest rates by 100 basis points in 2024, bringing the rate range to 4.25%-4.50%. The market expects two more rate cuts (25 basis points each) in 2025. In a more accommodative policy environment, the cost of financing in the crypto market will decrease, benefiting Layer2 scaling projects and Real-World Asset (RWA) tokenization initiatives.

Powell also emphasized that in addition to rate adjustments, the Fed would continue to shrink its balance sheet (reducing its holdings of securities). However, the pace of balance sheet reduction may slow to avoid excessive market liquidity tightening. As of January 2025, the Fed’s balance sheet has decreased from a peak of $9 trillion to $7.2 trillion, with a 22% reduction in Treasury holdings.

The adjustment of policy tools reflects the “dual transmission” of the Fed’s actions (interest rates and balance sheet management), which will likely have a generally positive effect on the crypto market. Overall, stablecoins such as USDC and USDT, which rely on U.S. Treasuries as reserve assets, may see increased arbitrage opportunities if short-term U.S. Treasury yields rise due to the balance sheet reduction. Additionally, DeFi lending protocols like Aave and Compound will experience enhanced interest rate sensitivity to Treasury yields, which could make on-chain fixed-income products more attractive if 10-year U.S. Treasury yields decrease to 3.5%-4%.

Macro-Economic Indicators and the Nonlinear Relationship with Crypto Market Dynamics

GDP Growth and Crypto Capital Flows: A Reconfigured Institutional Allocation Logic The U.S. economy is expected to grow by 2.5% in 2024, with consumer spending supporting economic expansion. However, business investments, especially in equipment and intangible assets, declined by 1.2% in Q4, signaling cautious capital expenditure.

Crypto Market Implications:

Institutional Entry: BlackRock’s Bitcoin ETF (IBIT) has reached a size of 450,000 BTC, with traditional asset managers increasingly using compliant tools to divert idle corporate funds, partly replacing Treasury investments.
RWA Surge: The tokenization of U.S. Treasuries has reached $72 billion (with Ondo Finance representing 58%), with an annualized yield of 4.44%. This has become a prominent on-chain cash management alternative for institutions (further details on this were covered in yesterday’s article).

2. Labor Market and Crypto Employment Paradigm: The Critical Point of Human-Machine Collaboration As the U.S. labor market undergoes “rebalancing,” the crypto industry shows distinct employment characteristics:

Remote Work Domination: Companies like Coinbase and Kraken have more than 80% of their full-time employees working remotely, reducing office costs and attracting global talent.
AI Agent Penetration: Protocols like Fetch.ai and Griffain have deployed DeFi strategy bots that have processed over 1.2 million transactions, replacing some functions of quantitative analysts.
Risk Warning: If the unemployment rate unexpectedly rises above 4.5%, the Fed may accelerate rate cuts, potentially stimulating risk assets in the short term. However, recession fears could lead to a simultaneous downturn in the crypto market and the broader stock market.

Structural Opportunities in the Crypto Market: Three Main Lines Driven by Fed Policies

Stablecoins: The “On-Chain Pipeline” of Monetary Policy Transmission

Scale Expansion: Stablecoins’ total market cap grew by 48% in 2024 to reach $193 billion, with cross-border payments’ share rising from 35% to 52%. Visa and Stripe’s integration of USDC is accelerating its commercial application.
Policy Arbitrage: As the Fed cuts rates and lowers short-term yields, issuers of USDC can profit from the interest rate differential by holding high-yield Treasuries, with annual yields of 3.8% (a 120 basis point increase from 2024).

2. RWA (Real-World Asset) Tokenization: The “Fusion Interface” between Traditional Finance and DeFi

U.S. Treasury Tokenization: Ondo Finance’s OUSG (BlackRock’s short-term Treasury ETF token) has a market cap of $6.23 billion, supporting multi-chain redemptions and Flux Finance lending, offering an APY of 4.44%.
Compliance Breakthroughs: Hong Kong and Singapore have issued special licenses for RWA projects. Matrixdock has launched the XAUm gold token, backed by LBMA-certified gold bars, with daily trading volumes exceeding $120 million.

3. Layer2 Infrastructure: The “Efficiency Revolution” in the Rate-Cutting Cycle

Cost Optimization: Celestia’s modular data availability layer has reduced RWA transaction costs to $0.001, attracting high-frequency trading projects from Solana’s ecosystem.
Revaluation of Staking Yields: EigenLayer’s re-staking TVL has surpassed $12.1 billion, but concerns over centralization arise as 33% of the staking cap has been reached, signaling a potential liquidity drain.

Risks under Policy Uncertainty

The “Gray Area” of Regulatory Frameworks

SEC Enforcement Conflicts: New SEC Chairman Paul Atkins is pushing for the classification of tokenized securities, but market volatility may result from jurisdictional disputes between the SEC and CFTC unless the FIT21 Act passes.
Tax Policy Risks: Trump’s proposal to impose a 15% capital gains tax on crypto assets (lower than the current 20%) could face delays in implementation due to political disagreements.

2. Technological Dependencies and Market Manipulation

Oracle Vulnerabilities: Chainlink’s price feeding delays have caused significant losses, such as the $24 million liquidation on the Plume RWA protocol on Solana.
MEV Intensification: Although the TEN Protocol uses Trusted Execution Environments (TEEs) to mitigate miner manipulation, cross-chain arbitrage in Layer2 systems still exposes the market to price discrepancies and arbitrage attacks.

Evaluation of the Fed’s Policy Framework and Long-Term Impact on the Crypto Market

The Federal Reserve remains cautious about Central Bank Digital Currencies (CBDCs), though a digital dollar pilot may launch by 2026. This could lead to a “public-private competition” between CBDCs and stablecoins. If the digital dollar supports programmability, it could reshape DeFi interest rate markets and cross-border settlement networks.

Additionally, the Fed’s rate cuts would lower the discount rate in crypto project Discounted Cash Flow (DCF) valuations, thus increasing the valuation flexibility of high-growth protocols like AI agents and modular blockchains.

Finally, if the 10-year U.S. Treasury yield remains in the 3.5%-4% range, Bitcoin’s “digital gold” narrative will need to offer at least a 5% annualized risk premium to attract institutional investors.

Conclusion: Finding Certainty in the Convergence of Monetary Policy and Crypto Innovation

The Fed’s semi-annual report reveals a path of “gradual easing” within the traditional financial system, while the crypto market is constructing a parallel financial system through stablecoins, RWAs, and Layer2 solutions. The intersection of these systems brings both arbitrage opportunities (such as U.S. Treasury tokenization) and systemic risks (such as regulatory misalignment). Investors must recognize that while the Fed’s policy tools can create a favorable liquidity environment, the long-term value of crypto assets still depends on solving real-world efficiency problems — whether in cross-border payments, asset tokenization, data privacy, or automated governance. Viewing monetary policy cycles as a “Beta lever” rather than an “Alpha source” will be key to capturing truly sustainable excess returns in the volatility of the market.

Note: This article is based on public data and model projections and does not constitute investment advice. The referenced data may be outdated, and real-time information should be consulted.