The current market swings between two opposing forces—on one side, expectations that the Federal Reserve may initiate a rate cut cycle; on the other, the ongoing expansion of the US fiscal deficit. This policy contest determines the direction of funding costs and also profoundly influences the performance of commodities and cryptocurrencies.

**How the Three Major Assets View**

First, look at the US dollar. Its strength or weakness depends not only on interest rates but also on market assessments of the overall US creditworthiness. Traditionally, higher interest rates mean a stronger dollar, but that’s no longer the case. Political uncertainty, massive deficits, policy swings—these factors are eroding the foundation of the dollar as the safest asset. Even if the Fed maintains high interest rates, the dollar may face medium-term pressure, and volatility is increasing.

The US Treasury yield curve is the real thermometer. Short-term yields follow expectations of Fed rate cuts—anticipated cuts push short-term yields down; long-term yields are driven higher by concerns over fiscal health—the larger the government deficit, the higher the long-term financing costs. The confrontation of these two forces creates a "bull steepening" trend: short-term yields fall sharply, while long-term yields stubbornly stay high.

What about Bitcoin? Its core driver is global dollar liquidity. Data shows a significant negative correlation between Bitcoin and the US dollar index—when the dollar weakens, Bitcoin usually rises; when the dollar strengthens, Bitcoin faces pressure. This is because Bitcoin, as a non-sovereign asset, becomes relatively more attractive when US credit margins weaken and dollar depreciation expectations rise. Interestingly, the correlation between Bitcoin and US stocks is weakening, increasing its independence.

**Liquidity Transmission Chain**

The logic is as follows: the market forms an expectation that "the Fed will cut rates" → this expectation depresses the dollar, pushing down short-term US Treasury yields → liquidity is released and flows into high-risk assets including Bitcoin → but at the same time, concerns over US long-term fiscal health can stall the process—preventing excessive decline in long-term Treasury yields and preventing the dollar from depreciating too far.

Simply put, if we only look at the short term, rate cut expectations are positive for Bitcoin; but if fiscal concerns intensify, this positive effect will be partially offset. In the entire chain, fiscal risk acts like a "brake," limiting the upward potential of asset prices.

**How to View the Market Now**

The true strength or weakness of the dollar depends on the US’s national credit rating—not just interest rates. US Treasury yields are a barometer of government financing costs, reflecting short-term Fed intentions and long-term fiscal health. Bitcoin and other cryptocurrencies are essentially high-risk versions of dollar liquidity, fluctuating inversely with dollar credit. Under this broad framework, every policy change is transmitted layer by layer into the market.