57800 for BTC? Deep Dive into the Underlying Logic of Bitcoin and the Fed's Liquidity Cycle

Recently, Bitcoin's fluctuation around $57,800 has led many to start discussing whether this is the bottom of the current cycle. But in my view, to truly understand Bitcoin's price movement, you can't just stare at the price level; you need to start with its core driving factor—the global liquidity cycle.

Bitcoin has never been an independent asset; it is a highly volatile barometer deeply tied to global liquidity. Throughout its historical trajectory, there have been no third states—only two cycles: monetary easing and monetary tightening.

I. Two Historical Bull and Bear Cycles: Liquidity Is the Only Theme

Let's first review Bitcoin's two complete bull-to-bear transitions in history to clearly see the decisive role of liquidity:

First Cycle: 2017-2018

• Easing Period (2017): The Fed's interest rate was still at historic lows, and global liquidity was abundant. Bitcoin rose from about $1,000 to nearly $20,000, a gain of nearly 20 times.

• Tightening Period (2018): The Fed raised interest rates four times during the year while starting to shrink its balance sheet, causing liquidity to recede. Bitcoin fell from $20,000 to about $3,000, a decline of 85%, and the price bottomed out at the end of the tightening period.

Second Cycle: 2020-2022

• Easing Period (2020): The pandemic broke out, the Fed cut rates to 0% and launched unlimited quantitative easing. Bitcoin rose from about $5,000 to nearly $69,000.

• Tightening Period (2022): The Fed raised rates by 425 basis points during the year while accelerating balance sheet reduction. Bitcoin fell from $69,000 to about $16,000, a decline of 77%.

These two cycles clearly tell us a core conclusion: Bitcoin's bull market does not begin with the halving, but with the flood of money; Bitcoin's bear market does not end with the halving, but with the end of tightening.

II. Current Macro Environment: The Most Awkward Combination

Now, let's apply this framework to the current macro environment. The U.S. economy is at a delicate stage:

• Benchmark Rate: The Fed's benchmark rate is currently maintained at 3.50% to 3.75%. Although rate hikes have paused, it is still at a restrictive level.

• Bond Market: The 10-year U.S. Treasury yield is currently around 4.48%, and the 2-year yield is around 4.13%. The yield curve inversion has persisted for nearly two years.

• Economic Interpretation: Historically, this combination has only one interpretation—economic recession comes first, rate cuts follow. The bond market is already pricing in future economic weakness.

The Fed is staying put, and under Waller's leadership, the Fed is using "time for space," buying time to first bring down inflation:

• The job market is deteriorating but hasn't collapsed. The average monthly employment growth over the past 12 months is only 36k, less than half the break-even line.

• Inflation is still well above target. Core PCE is above 3.4%, still a long way from 2%.

The market is transitioning from "stagflation fears" to "recession trading." Corresponding to Bitcoin's situation:

• No new liquidity injection. Waller has not cut rates, and market expectations for rate cuts are swinging back and forth.

• Capital continues to retreat. Over the past three months, U.S. Bitcoin spot ETFs have seen net outflows of approximately $5 billion, with $4.5 billion outflows in May alone—this is a historic level of capital withdrawal.

• Risk appetite is on a downward trend. With deteriorating employment and rising recession expectations, institutions are systematically reducing risk assets.

• Total market liquidity is shrinking. Balance sheet reduction is still ongoing, and bank reserves are decreasing.

Putting these data points together: benchmark rate 3.5% to 3.75%, 10-year Treasury yield above 4.0%, inflation 4.1%, average monthly employment 36k. Historically, this combination has only one name—high rates + weak employment + sticky inflation, the most awkward macro combination.

The money market has not given any easing signals, the bond market is pricing in recession, and the Fed is on the sidelines. As a non-yielding, non-cash-flow-generating asset, Bitcoin has no macro tailwinds to ride in this environment.

At this stage, Bitcoin does not have the liquidity foundation for a trend-driven rally. It may fluctuate with risk assets, but it's difficult to have an independent upward trend.

III. The Truth Behind the Recent Rebound: Expectation Shock from Nonfarm Data

So why did Bitcoin bounce from $57,800 to above $62,500 in the past two days? This is directly related to the U.S. nonfarm payroll data released on July 2.

Over the past three months, U.S. employment data has been consistently strong, with new jobs above 150k each month. But the June nonfarm payroll released last Thursday was only 57k, a cold reading. This opened a gap for the market, and the market began to trade on the expectation that "the Fed will inevitably release easing to save the market later."

But there is a very easily overlooked misinterpretation here: Is the market truly trading "rate cuts"? I don't think so. What the market is really trading right now is whether the U.S. economy can achieve a soft landing.

Many people are convinced: Trump will pressure the Fed to release easing expectations for the midterm elections. Others believe that falling oil prices will inevitably lead to falling inflation, and Waller will definitely deploy a combination of "balance sheet reduction + rate cuts."

But these judgments are all based on the same assumption—that the Fed will pivot to easing without hesitation when the economy weakens. People who completely do not understand the monetary system are getting excited by various "inspirational videos," thinking that rate cuts are the starting gun for a bull market.

IV. Core Deduction: Rate Cuts Are Not the Turning Point; Balance Sheet Expansion Is

Let's make a core deduction: If the Fed actually cuts rates once in 2026, how will inflation behave?

My answer: Inflation will not immediately "worsen," but it will become more "sticky"—like glue stuck above 3%, unable to come down.

Why? Because a single rate cut itself doesn't change much. Even after one cut, the rate is still above 4%, still in a tightening zone, with very limited stimulation to the economy.

But it will change one thing—market expectations. The market will begin to doubt: Has the Fed surrendered to the economy before inflation has reached its target?

Once inflation expectations start to become unanchored, companies will dare to raise prices, and workers will dare to demand wage increases. The wage-price spiral could start turning again. At that point, the inflation that was barely brought down by falling oil prices may be pushed back up by service inflation and wage inflation.

This is why, ever since taking office, Waller has been using hawkish rhetoric to manage market expectations, cutting the Fed's forward guidance, fearing that the economy could move from stagflation to a full-blown recession (early stages of recession).

So back to the original question: Is 57,800 the bottom for this Bitcoin cycle? I cannot answer that, because no one can accurately predict the market bottom. But I can tell you a more deterministic judgment framework:

As long as the Fed is still fighting inflation, as long as interest rates remain at restrictive levels, as long as balance sheet reduction continues, Bitcoin will not see its liquidity spring.

It may rise due to oversold bounces, it may spike due to data shocks, but the macro conditions for a trend reversal have not yet arrived.

V. 2027: The Real Liquidity Turning Point

Bitcoin is a mirror of liquidity, not a creator of liquidity. It does not create a bull market; it merely reflects the footprint of global money printing. You think you are trading Bitcoin, but you are actually trading the Fed's balance sheet.

The Fed cutting rates is not the turning point; the Fed expanding its balance sheet is. The real turning point for monetary easing, I tend to believe, will occur in 2027.

Why 2027? Because the inertia of inflation is stronger than the market imagines:

• One rate cut in 2026 may leave inflation stuck above 3%.

• The Fed will not expand its balance sheet when inflation is at 3%, because that would be an admission of giving up on taming inflation, destroying the Fed's credibility.

But by 2027, when high rates have suppressed the economy long enough, when the job market cools enough that the Fed must act—balance sheet reduction will end, balance sheet expansion will restart, and liquidity will flood back into the market.

This is why I suggest you understand the cycle, not chase the price level.

Risk Disclaimer: This article does not provide any buy/sell advice, does not predict prices, and does not recommend trading. All content is based on publicly available monetary policy history and liquidity cycle data, serving as a purely logical deduction, and should not be used as investment advice for anyone.