Author: DeFi Cheetah, Crypto KOL
Translated by: Felix, PANews
As previously predicted, the US stock market would experience at least a 20% pullback, bringing Bitcoin's price back to around $50,000. The first target has been achieved: due to Trump's implementation of stricter tariffs on many other countries, the US stock market underwent a 20% pullback with the VIX index around 55. Bitcoin's price once dropped to $74,000, showing more resilience than historically expected.
Next, the Federal Reserve is expected to cut rates before June, followed by a rebound in the US stock market and crypto market. In fact, Trump has just explicitly requested Fed Chairman Powell to lower interest rates. This article will explain in detail why Trump is so obsessed with rate cuts and why he is bullish on the crypto market.
Two Urgent Issues Caused by High Interest Rates
Two issues in the coming months will force the Federal Reserve to significantly cut rates. First, the $9 trillion "Maturity Wall" of government bonds this year compels the Trump administration to seek rate cuts to save trillions in refinancing costs. However, from the Fed's perspective, current inflation levels do not leave room for rapid rate cuts. Therefore, the best explanation for the Trump administration's seemingly irrational aggressive policies and measures (such as tariffs, establishing Doge, etc.) is that they constitute a synergistic mechanism trying to force the Fed to cut rates through macroeconomic uncertainty. Otherwise, the US government will have to pay 3-4 times the interest after extension. In fact, two-year short-term Treasury bond yields have been declining, reflecting market risk aversion and capital inflows into Treasury bonds.
In the Trump administration's view, the urgency of rate cuts can be explained by the following chart:
In fact, the surge in the Merrill Lynch Option Volatility Estimate Index (MOVE), which measures interest rate volatility in the US Treasury market, further proves the possibility of Fed rate cuts. This index is considered a representative of US Treasury term premiums (the yield spread between long-term and short-term bonds). As this index rises, anyone involved in US Treasury or corporate bond financing transactions will be forced to sell due to higher margin requirements. If the MOVE index continues to rise, especially above 140, it may indicate extreme market instability and potentially force the Fed to stabilize the Treasury and corporate bond markets through rate cuts, as these markets are crucial to the financial system's normal functioning. (Note: The last time the MOVE index spiked above 140 was due to the Silicon Valley Bank collapse - the largest bank failure since 2008.)
The second reason for significant rate cuts in the coming months is also due to the "Maturity Wall", this time referring to over $500 billion in US commercial real estate (CRE) loans maturing this year. Many CRE loans were previously underwritten at lower rates during the pandemic and now face refinancing challenges in a continuously rising interest rate environment, potentially leading to increased default rates, especially for highly leveraged real estate. The rise of remote work has particularly caused structural changes, resulting in high vacancy rates post-pandemic.
In Q4 2024, CRE loan delinquency rates were 1.57%, higher than 1.17% in Q4 2023. Historical data shows that rates above 1.5% are concerning, especially in a monetary tightening environment. Meanwhile, with vacancy rates reaching 20%, rising capitalization rates (around 7-8%), and numerous loans maturing, office building values have dropped 31% from their peak, increasing default risks.
The logic here is: high vacancy rates reduce Net Operating Income (NOI), lower Debt Service Coverage Ratio (DSCR) and debt yields, but increase capitalization rates. High interest rates exacerbate this situation, especially for loans maturing in 2025, where refinancing at higher rates may become unsustainable. Therefore, if commercial real estate loans cannot be refinanced at reasonable low rates similar to the pandemic period, banks will inevitably have more bad debts, which could trigger a "domino effect" with more bank failures (recall the severity of bank collapses like Silicon Valley Bank during the 2023 interest rate surge).
Given these two urgent issues caused by current high interest rates, the Trump administration must take aggressive measures to cut rates quickly. Otherwise, these debts must be extended, and the US government will face higher refinancing costs, with many commercial real estate loans potentially unable to be extended, causing massive bad debts.
Catalyst for the Next Bull Market - Stablecoins
Market liquidity has the most significant impact on the crypto market. However, the factors most influencing liquidity are (i) monetary policy and (ii) stablecoin adoption. Under dovish monetary policy, stablecoin adoption can further catalyze capital inflows in the bull market. The bull market's upside potential depends on the increase in total stablecoin supply. In the previous bull market (2019 - 2022), total stablecoin supply grew 10-fold from its trough to peak, while only growing about 100% from 2023 to early 2025, as shown in the chart below.
Below, we will focus on events that signal rapid stablecoin adoption growth in the next year:
- U.S. Stablecoin Legislation Progress: In the first quarter of 2025, the Senate Banking Committee approved the GENIUS Act in March, which outlines regulatory and reserve rules for stablecoin issuers. The bill aims to integrate stablecoins into the mainstream financial system, reflecting growing recognition of their role in the crypto market. Additionally, the U.S. House Financial Services Committee passed the STABLE Act, a stablecoin framework bill that allows non-bank institutions to issue stablecoins with federal regulatory approval. Regulatory transparency has long been considered the most critical factor influencing stablecoin adoption and capital inflow into the crypto industry.
- Accelerating Institutional Adoption: Fidelity began testing a dollar-pegged stablecoin in late March, marking a significant step for this traditional financial giant into the crypto realm. Meanwhile, Wyoming announced plans to launch a state-backed stablecoin by July, aiming to become the first fully reserved, fiat-backed token issued by a U.S. entity.
- World Liberty Financial Stablecoin: Trump-related World Liberty Financial announced on March 25 plans to launch USD1, a dollar-pegged stablecoin, after raising $500 million through a separate token sale. This move aligns with the Trump administration's policy supporting stablecoins as a critical infrastructure for crypto trading.
- USDC Expansion to Japan: On March 26, Circle partnered with SBI Holdings to launch USDC in Japan, making it the first stablecoin officially approved under the Japanese regulatory framework. This demonstrates Japan's proactive attitude towards integrating stablecoins into its financial system and may serve as a model for other countries.
- PayPal and Gemini Advancing Stablecoin Development: Throughout the first quarter, PayPal and Gemini consolidated their positions in the stablecoin market. Adoption of PayPal's PYUSD and Gemini's GUSD increased, with PayPal leveraging its payment network and Gemini focusing on institutional clients. This intensifies competition among U.S. stablecoin issuers.
- More Use Cases for Rise Payroll Platform: On March 24, Rise expanded its services to provide stablecoin payments for international contractors in over 190 countries. Employers can pay wages in stablecoins, and employees can withdraw in local currency.
- Circle's IPO: Circle has submitted an IPO application. If approved, it will become the first stablecoin issuer listed on the New York Stock Exchange. This will mark the official status of stablecoin businesses in the U.S. and encourage more enterprises, especially large institutions, to explore the sector due to its reliance on institutional resources, distribution channels, and business development.
Why was the Trump administration so actively supporting stablecoin development? This is consistent with the first part's perspective: the collateral for circulating stablecoins is primarily short-term U.S. Treasury bonds. As the U.S. government rolls over trillions of dollars in maturing bonds this year, the more prevalent stablecoins become, the higher the demand for short-term Treasury bonds.
The market direction is clear: in the short term, there may be market turbulence with high volatility, potentially further declining from current levels. However, from a medium-term perspective, with dovish monetary policy and significant interest rate cuts, coupled with stablecoin proliferation, another strong bull market comparable to the previous cycle is expected.
Now is an ideal time to potentially obtain good returns through crypto market investment.
Related Reading: Reviewing the Federal Reserve's 10-Year Interest Rate Cycle: Where Will Bitcoin Go Under the Best, Moderate, and Worst Paths?
