MARKET INSIGHT IV | TRADITIONAL DIGITAL

SEPTEMBER 10, 2025

Post-Labor Day Outlook: Bullish, but Balanced

As we enter the fall, our outlook remains bullish. Powerful macro and regulatory forces are aligning in favor of digital assets, but we continue to be measured in our approach. We’re mindful of where we stand within the traditional four-year crypto cycle, with a potential cyclical peak late this year. Unlike prior cycles, however, we do not expect that to usher in a prolonged bear market. Too many positive catalysts are converging in the near term, setting the stage for continued institutional adoption and structural repricing.

We are particularly focused on four key forces shaping the landscape through year-end and early 2026:

• The Fed’s dovish pivot at Jackson Hole

• Liquidity implications of the RRP and TGA

• Looming U.S. regulatory changes that could unlock vast institutional capital through custody reform

• The potential revaluation of U.S. gold reserves as a precursor to Bitcoin’s role as a strategic reserve asset

  
  

1. The Fed’s Dovish Turn - Employment over Inflation

What Happened: Chair Powell struck a cautious but clearly dovish tone at Jackson Hole, signaling a shift toward prioritizing employment and real wage growth over strict inflation targeting. 

This isn’t wildly inconsistent with the historical Fed mantra, though it clearly seems to lean towards employment / growth goals, implying less focus on inflation targets.

It is particularly relevant now as a footnote   in his speech hinted at significant downward revisions to jobs data, reinforcing the case for rate cuts. 

Why It Matters: With labor market cooling (JOLTS data shows <1 job per seeker for the first time since 2021), the Fed is likely to deliver at least a 25bp cut in September, with a non-negligible chance of 50bps. It would be “getting closer to neutral” as Powell noted into a weakening labor market.

Our View: A supportive macro backdrop for risk assets is forming, providing a tailwind for digital assets into year-end. However, investors must appreciate the reflexive nature of crypto: rate cuts lower financing costs.

Relevance for Investors: The Fed’s stance reinforces the case for crypto as a high-beta beneficiary of increasing liquidity and lower real rates. It sets the stage for outsized moves once market structure catalysts align.

2. Reverse Repo Draining - Liquidity on the Horizon

What Happened: The Fed’s Reverse Repo balances have collapsed to ~$20B, down from over $2T at their peak. This recent, sharp decrease is largely the result of Treasury refilling the TGA (now near $750B). This is a cyclical process that will reverse in the 4th quarter, resulting in increased USD liquidity.

Why It Matters: Liquidity injections have historically been strongly correlated with rallies in risk assets, including Bitcoin. This mechanism has already cushioned markets against tighter financial conditions and is set to deliver another tailwind with monetary policy loosening.

Our View: As RRP balances approach exhaustion, the stage is set for a liquidity-driven rally into year-end. Combined with a dovish Fed, this creates a “goldilocks” environment for crypto if supply overhangs are absorbed.

Relevance for Investors: Liquidity is the single most important driver of crypto cycles. The coming RRP-to-TGA rotation provides one of the clearest macro tailwinds investors should track into year-end.

3. Regulatory Clarity - Custody as the Gateway

What Happened: The Trump administration is preparing sweeping crypto legislation as soon as September, including reforms on custody, securities definitions, and DeFi. The critical piece (in our view) is enabling U.S. banks to custody digital assets.

Why It Matters: We believe U.S. banks becoming comfortable with crypto custody will unlock a significant wave of capital from traditional finance. Following the collapse of FTX and other counterparties (and given the lack of insurance or investment-grade ratings for most crypto service providers), large pools of institutional capital have been reluctant to engage. For these allocators, the risk of losing assets in a custody failure has outweighed the potential upside of trading crypto.

Our View: This represents a seminal moment in the mainstream adoption of digital assets by large institutional investors. This is a near-term, high-impact catalyst. Regulatory clarity on custody would immediately unlock capital flows and reframe crypto as an investable institutional asset class.

Relevance for Investors: Custody reform is not just compliance - it’s capital unlock. Investors positioned ahead of this shift stand to benefit disproportionately from the inflows that will follow.

4. Revaluation of Gold Reserves – A Strategic Door for Bitcoin

What Happened: Historically, governments have revalued gold reserves to strengthen balance sheets - Roosevelt last did this in the U.S. during the Great Depression. A similar conversation has emerged today: revaluing U.S. gold reserves to enable the Trump administration’s stated goal of building a 1 million BTC strategic reserve.

The administration has framed the potential bitcoin strategic reserve with several constraints:  

• purchases can’t use taxpayer funds, 

• must be budget-neutral

• can’t rely on tariff revenue

This leaves gold revaluation as a potential mechanism to “print” the balance sheet capacity for BTC acquisition.

Our View: While not our base case, this is a tail-risk upside scenario. Even signaling progress on this front would legitimize Bitcoin as a strategic reserve asset, re-rating its global role. Could be nothing or something to keep an eye on. 

Relevance for Investors: A gold-to-BTC revaluation narrative would be a historic catalyst, boosting institutional confidence and driving significant capital inflows. Investors should view this as asymmetric upside exposure embedded within current valuations.

Final Thoughts

The months ahead present one of the most compelling environments we’ve seen for digital assets. Central bank tailwinds, cyclical liquidity shifts, and imminent regulatory clarity are converging to create conditions that reward those who are positioned with foresight and discipline.

Given this setup, our job is clear: identify the right assets, structure trades effectively, and set disciplined levels to maximize upside while limiting downside. This is the challenge, but it is also the discipline that defines our process - capturing opportunity while protecting capital. That said, markets have been tricky in recent months. We’ve seen a recurring pattern: an initial run-up in asset prices, followed by cooling, another push higher, and then sharp, often predatory, end-of-month selling. Now that this behavior has become more pronounced, we are paying very close attention and adapting our approach accordingly.

We are excited for what lies ahead (while always carefully looking for more bearish signals) - and even more excited to capture this value on behalf of our partners. As always, please don’t hesitate to reach out if you’d like to discuss our outlook, positioning, or strategy in greater detail.

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This material is for informational purposes only and does not constitute investment, legal, or tax advice, nor an offer or solicitation to buy or sell any securities or financial instruments. The views expressed are based on information believed to be reliable as of the date of publication but may change without notice. Accuracy or completeness is not guaranteed.

Past performance is not indicative of future results, and any forward-looking statements involve risks and uncertainties. Investors should conduct their own research and consult with financial and legal advisors before making any investment decisions. Traditional Digital and its affiliates accept no liability for any losses arising from reliance on this material.