Crypto Market Surges 20% in May as Inflation Cools, Fed Liquidity Rises

HTX Research has released a comprehensive analysis of the cryptocurrency market, highlighting a robust recovery since the beginning of May. Bitcoin has surged back above $100,000, while Ethereum and Solana have also shown significant strengthening. This upward trend is bolstered by positive macroeconomic indicators, particularly the decline in U.S. inflation and increased liquidity from the Federal Reserve.

The U.S. Consumer Price Index (CPI) data for April, released on May 13, 2025, indicated a further cooling of inflation. The overall CPI annualized rate was 2.3%, down from a previous reading of 2.6%, and in line with expectations. Core CPI was recorded at 2.8%, also meeting expectations. This data reinforced expectations for a Fed interest rate cut later this year. Analysts note that some companies, anticipating tariffs, had replenished inventories in advance, temporarily delaying cost increases for consumers. Commodity prices remained stable, with a slight rise of 0.1% excluding food and energy, suggesting a moderate impact from tariffs. However, retailers have warned of potential future price increases, and the PCE index, closely monitored by the Fed, remains above the 2% target.

Increased liquidity has also supported the market. Total Fed assets rose from $6.70 trillion to $6.73 trillion in early May, with net liquidity increasing by about $50 billion. The U.S. Treasury's TGA grew to $583 billion, and the RRP balance fell to a historic low of $78 billion. This liquidity improvement is due to the slowdown in the Fed's quantitative tightening, the return of tax season financing, and the outflow of money market funds from RRP. HTX Research analysts caution that if the Treasury conducts a large TGA replenishment after the July–August debt ceiling agreement and the RRP buffer pool is depleted, systemic liquidity could shrink, putting pressure on risk assets.

Institutional investors have been actively building positions in the cryptocurrency market. Open interest in Bitcoin futures remains high, indicating continued allocation of institutional funds. Bitcoin's open interest on cryptocurrency trading platforms increased by 12%, with positions concentrated near the $100,000 mark. Ethereum and Solana derivatives markets are also showing strong recoveries, with ETH open interest up 15% and SOL rebounding 18%. However, the high proportion of short-term holders in profit for both ETH and SOL increases the risk of short-term profit-taking.

Deribit data shows that the implied volatility of near-term Bitcoin options declined following the release of CPI data, reflecting market expectations of stabilized short-term volatility. Some institutional players started selling options to realize premiums. The Ethereum options market has a bullish structure for the long term, with December call options at $4,000–$5,000 actively traded, indicating that institutional investors are pre-positioning at low levels in anticipation of the next wave of growth.

Overall, the HTX Research report highlights that increased macroeconomic liquidity, heightened expectations of rate cuts due to cooling inflation, continued institutional investor positioning, and renewed risk appetite in derivatives markets have collectively contributed to a strong May recovery in key crypto-assets. However, the high proportion of short-term holders in profit and the concentration of leveraged positions in the derivatives market could lead to significant volatility if prices break key technical levels, potentially triggering massive profit-taking and a cascade of liquidations. The overall market configuration is characterized by a medium-term structural bullish trend with short-term consolidation.

HTX Research also notes important regulatory developments. The Securities and Exchange Commission (SEC) is studying an exemption mechanism for the registration of tokenized securities. This mechanism would allow certain companies to issue, trade, and settle qualified tokenized securities through distributed ledger technology without going through the traditional securities registration process. The exemption regime includes strict conditions to ensure security and market compliance, such as compliance with anti-fraud rules, providing comprehensive information to users, and being subject to SEC inspections. Initially, there will be restrictions on the types of tokenized securities, issuance volumes, and trading liquidity, with expansion possible after stable operation of the pilot project and achievement of regulatory goals.

According to HTX Research analysts, the May rally in the cryptocurrency market is driven by a combination of macroeconomic factors and institutional interest. Despite short-term volatility risks, fundamentals point to the formation of a longer-term bullish trend. Regulatory initiatives in tokenized securities may create new opportunities for the digital asset market.