On the night of the Federal Reserve rate cut, the real game is Trump’s “monetary power grab”

Tonight will see the most anticipated Fed rate cut decision of the year.

The market generally bets that a rate cut is almost a certainty. But what will truly determine the trajectory of risk assets in the coming months is not another 25 basis point cut, but a more crucial variable: whether the Fed will inject liquidity back into the market.

This time, therefore, Wall Street is watching not the interest rate, but the balance sheet.

According to expectations from institutions such as Bank of America, Vanguard, and PineBridge, the Fed may announce this week the launch of a $4.5 billion monthly short-term bond purchase plan starting in January next year, as a new round of "reserve management operations." In other words, this means the Fed may be quietly restarting an era of "covert balance sheet expansion," allowing the market to enter a phase of liquidity easing even before rate cuts.

But what truly makes the market nervous is the backdrop against which this is happening—the US is entering an unprecedented period of monetary power restructuring.

Trump is taking over the Fed in a way that is much faster, deeper, and more thorough than anyone expected. It's not just about replacing the chair, but about redrawing the boundaries of the monetary system's power, reclaiming control over long-term interest rates, liquidity, and the balance sheet from the Fed back to the Treasury. The central bank independence that has been regarded as an "institutional iron law" for decades is quietly being loosened.

This is also why, from Fed rate cut expectations to ETF capital flows, from MicroStrategy and Tom Lee's contrarian buying, all seemingly disparate events are actually converging on the same underlying logic: the US is ushering in a "fiscal-dominated monetary era."

And what impact will these have on the crypto market?

MicroStrategy and Others Are Taking Action

In the past two weeks, the entire market has been discussing the same question: will MicroStrategy be able to withstand this downturn? Bears have simulated various scenarios of the company's "collapse."

But Saylor clearly doesn't think so.

Last week, MicroStrategy increased its bitcoin holdings by about $963 million, specifically 10,624 BTC. This is his largest purchase in recent months, even exceeding the total of the past three months combined.

It’s worth noting that the market had long speculated whether MicroStrategy would be forced to sell coins to avoid systemic risk when its mNAV approached 1. Yet, when the price hit almost exactly 1, not only did he not sell, he doubled down and bought more, and at such a large scale.

Meanwhile, the ETH camp also staged an equally impressive contrarian move. Tom Lee’s BitMine, despite ETH’s price plunge and a 60% drop in company market cap, continued to tap the ATM, raising large amounts of cash and buying $429 million worth of ETH in one go last week, pushing its holdings to $12 billion.

Even though BMNR’s stock price has pulled back more than 60% from its peak, the team can still keep raising money through the ATM (issuance mechanism) and keep buying.

CoinDesk analyst James Van Straten put it even more bluntly on X: "MSTR can raise $1 billion in a week, whereas in 2020, it took them four months to achieve the same scale. The exponential trend continues."

From a market cap impact perspective, Tom Lee’s move is even "heavier" than Saylor’s. BTC is five times the market cap of ETH, so Tom Lee’s $429 million buy is equivalent to Saylor buying $1 billion in BTC in terms of "double the impact" by weight.

No wonder the ETH/BTC ratio has started to rebound, breaking out of a three-month downtrend. History has repeated itself countless times: whenever ETH leads the recovery, the market enters a short but fierce "altcoin rebound window."

BitMine now holds $1 billion in cash, and the ETH pullback range is the best position for him to significantly lower his average cost. In a market where liquidity is generally tight, having institutions that can keep firing is itself part of the price structure.

ETF Outflows Are Not an Exodus, But a Temporary Retreat of Arbitrageurs

On the surface, nearly $4 billion has flowed out of bitcoin ETFs in the past two months, with the price dropping from $125,000 to $80,000, leading the market to a crude conclusion: institutions are retreating, ETF investors are panicking, and the bull market structure has collapsed.

But data from Amberdata provides a completely different explanation.

These outflows are not "value investors running away," but "leveraged arbitrage funds being forced to unwind." The main source is a structured arbitrage strategy called "basis trade." Funds originally earned stable spreads by "buying spot/selling futures," but since October, the annualized basis has dropped from 6.6% to 4.4%, with 93% of the time below the breakeven point, turning arbitrage into a loss and forcing the strategy to be dismantled.

This triggered the "dual action" of ETF selling + futures covering.

By traditional definition, capitulation selling usually occurs in an extreme emotional environment after continuous declines, when market panic peaks, and investors stop trying to stop losses and instead give up all positions. Typical features include: almost all issuers seeing large-scale redemptions, trading volume surging, sell orders flooding in regardless of cost, and accompanied by extreme sentiment indicators. But this ETF outflow clearly does not fit this pattern. Although there was a net outflow overall, the direction of funds was not consistent: for example, Fidelity’s FBTC maintained continuous inflows throughout the period, and BlackRock’s IBIT even absorbed some incremental funds during the most severe net outflow phase. This shows that the real exits were only a few issuers, not the entire institutional group.

More crucial evidence comes from the distribution of outflows. As of the 53 days from October 1 to November 26, Grayscale’s funds accounted for over $900 million in redemptions, 53% of the total outflow; 21Shares and Grayscale Mini followed closely, together accounting for nearly 90% of the redemption scale. In contrast, BlackRock and Fidelity—the most typical institutional allocation channels—were net inflows overall. This is completely inconsistent with a true "panic institutional retreat," and instead looks more like a "localized event."

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

Basis trading is essentially a direction-neutral arbitrage structure: funds buy spot bitcoin (or ETF shares) and simultaneously short futures to earn the spot-futures spread (contango yield). This is a low-risk, low-volatility strategy that attracts a lot of institutional money when futures premiums are reasonable and funding costs are controllable. However, this model relies on one premise: futures prices must consistently exceed spot prices, and the spread must be stable. Since October, this premise has suddenly disappeared.

According to Amberdata statistics, the 30-day annualized basis dropped from 6.63% to 4.46%, with 93% of trading days below the 5% breakeven point required for arbitrage. This means such trades are no longer profitable and even start losing money, forcing funds to exit. The rapid collapse of the basis led to a "systematic unwinding" for arbitrageurs: they had to sell ETF holdings and buy back previously shorted futures to close the arbitrage trade.

This process is clearly visible in market data. Bitcoin perpetual contract open interest fell by 37.7% over the same period, a cumulative decrease of over $4.2 billion, with a correlation coefficient of 0.878 with the basis change—almost a synchronous move. This "ETF selling + short covering" combination is the typical path for basis trade exits; the sudden amplification of ETF outflows was not driven by price panic, but was the inevitable result of the arbitrage mechanism collapsing.

In other words, the ETF outflows of the past two months are more like the "liquidation of leveraged arbitrageurs," not a "retreat of long-term institutions." This is a highly professional, structured trade unwinding, not panic selling caused by a collapse in market sentiment.

More importantly, after these arbitrageurs are cleared out, the remaining capital structure actually becomes healthier. ETF holdings are still maintained at a high level of about 1.43 million bitcoin, with most shares coming from allocation-type institutions rather than short-term funds chasing spreads. As arbitrageurs’ leveraged hedges are removed, the market’s overall leverage ratio drops, sources of volatility decrease, and price action will be more driven by "real buying and selling power" rather than forced technical operations.

Amberdata’s head of research, Marshall, described this as a "market reset": after arbitrageurs retreat, new ETF funds are more directional and long-term, structural noise in the market decreases, and subsequent trends will better reflect real demand. This means that, although it appears to be a $4 billion outflow on the surface, it may not be a bad thing for the market itself. On the contrary, it could lay the foundation for the next healthier rally.

If Saylor, Tom Lee, and ETF capital flows reflect the attitude of micro-level funds, the changes happening at the macro level are deeper and more dramatic. Will there be a Christmas rally? To find the answer, we may need to look again at the macro level.

Trump "Takes Control" of 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.

More and more signs show that the Trump team is taking over the Fed in a way that is much faster and more thorough than the market expected. It’s not just a symbolic "hawkish chair replacement," but a complete rewrite of the power distribution between the Fed and the Treasury, changing the balance sheet mechanism, and redefining the way the yield curve is priced.

Trump is attempting to reconstruct the entire monetary system.

Joseph Wang, former head of the New York Fed trading desk (who has studied the Fed’s operating system for years), has also clearly warned: "The market is significantly underestimating Trump’s determination to control the Fed. This change could push the market into a higher-risk, higher-volatility phase."

From personnel arrangements and policy direction to technical details, we can see very clear traces.

The most direct evidence comes from personnel appointments. The Trump camp has already placed several key figures in core positions, including Kevin Hassett (former White House economic adviser), James Bessent (important Treasury decision-maker), Dino Miran (fiscal policy think tank), and Kevin Warsh (former Fed governor). They share a common trait: they are not traditional "central bank types," and certainly do not insist on central bank independence. Their goal is clear: to weaken the Fed’s monopoly over interest rates, long-term funding costs, and system liquidity, and to return more monetary power to the Treasury.

The most symbolic point: it is widely believed that Bessent, the most suitable candidate to succeed as Fed chair, ultimately chose to stay at the Treasury. The reason is simple: in the new power structure, the Treasury’s position is more decisive than the Fed chair in setting the rules of the game.

Another important clue comes from changes in term premium.

For ordinary investors, this indicator may be a bit unfamiliar, but it is actually the most direct signal for the market to judge "who controls long-term interest rates." Recently, the spread between 12-month US Treasuries and 10-year Treasuries has once again approached a stage high, and this round of increase is not due to a better economy or rising inflation, but because the market is reassessing: in the future, it may not be the Fed, but the Treasury that determines long-term interest rates.

The yields on 10-year and 12-month Treasuries are continuing to decline, meaning the market is strongly betting the Fed will cut rates, and at a faster and larger pace than previously expected.

SOFR (Secured Overnight Financing Rate) experienced a cliff-like drop in September, indicating a sudden collapse in US money market rates and a significant loosening signal in the Fed’s policy rate system.

The initial rise in the spread was because the market thought Trump would overheat the economy after taking office; later, when tariffs and large-scale fiscal stimulus were absorbed by the market, the spread quickly fell back. Now, the spread is rising again, reflecting not growth expectations but uncertainty about the Hassett–Bessent system: if the Treasury controls the yield curve in the future by adjusting debt duration, issuing more short-term debt, and compressing long-term debt, then traditional methods of judging long-term rates will become completely invalid.

More subtle but crucial evidence lies in the balance sheet system. The Trump team frequently criticizes the current "ample reserves system" (the Fed expands its balance sheet and provides reserves to the banking system, making the financial system highly dependent on the central bank). But at the same time, they clearly know that current reserves are already tight, and the system actually needs balance sheet expansion to maintain stability.

This contradiction of "opposing expansion, but having to expand" is actually a strategy. They use this as a reason to question the Fed’s institutional framework and push for more monetary power to be transferred back to the Treasury. In other words, they do not want to shrink the balance sheet immediately, but to use the "balance sheet controversy" as a breakthrough to weaken the Fed’s institutional status.

If we piece these actions together, we see a very clear direction: term premium is compressed, Treasury durations are shortened, long-term rates gradually lose independence; banks may be required to hold more Treasuries; government-sponsored entities may be encouraged to leverage up to buy mortgage bonds; the Treasury may influence the entire yield structure by increasing short-term debt issuance. Key prices previously set by the Fed will gradually be replaced by fiscal tools.

The result may be: gold enters a long-term upward trend, stocks maintain a slow upward structure after volatility, and liquidity gradually improves due to fiscal expansion and repo mechanisms. The market will appear chaotic in the short term, but this is only because the boundaries of monetary system power are being redrawn.

As for bitcoin, the crypto market’s main concern, it sits on the edge of this structural change—not the direct beneficiary, nor the main battleground. On the positive side, improved liquidity will provide a price floor for bitcoin; but in the longer term, looking 1–2 years ahead, it still needs a period of reaccumulation, waiting for the new monetary system framework to become clear.

The US is moving from a "central bank-dominated era" to a "fiscal-dominated era."

In this new framework, long-term rates may no longer be set by the Fed, liquidity will come more from the Treasury, central bank independence will be weakened, market volatility will increase, and risk assets will face a completely different pricing system.

When the underlying system is being rewritten, all prices will behave more "illogically" than usual. But this is a necessary stage as the old order loosens and the new order arrives.

The market trends of the next few months are likely to be born out of this chaos.