Crypto markets are running in slow motion. Capital is migrating en masse toward artificial intelligence, leaving trading volumes under pressure and overall sentiment in the doldrums.
Spencer Hallarn, Head of Markets at GSR, has identified two catalysts capable of reversing the trend: a cooling of AI investment and an accommodative pivot from the US Federal Reserve.
Caught between macro uncertainty and direct competition from AI for capital flows, the crypto market is playing a multi-dimensional chess game.
When AI Steals the Spotlight from Crypto in Capital Markets
Spencer Hallarn’s assessment is blunt: the crypto market is going through a low-activity phase, partly because artificial intelligence is absorbing a growing share of both institutional and retail investment flows. Capital that could have fueled a new bull cycle in Bitcoin or altcoins is instead being directed toward mega AI projects, data centers, and GPU infrastructure.
This is no minor development. Available liquidity across financial markets is not infinite: every dollar invested in NVIDIA, AI startups, or tech-themed funds is a dollar that is not circulating within the crypto ecosystem. The result shows up directly in on-chain volumes and order books: shallower market depth, greater price volatility, and an increasingly difficult environment for sustaining meaningful breakouts.
Hallarn nonetheless anticipates a rebalancing. If enthusiasm for AI begins to moderate — driven by valuation saturation or disappointment over returns — a portion of that capital could naturally rotate back toward high-potential alternative assets, including cryptocurrencies.
Fed, Interest Rates, and Crypto: The Scenario That Could Restart Everything
The other key variable identified by GSR is Federal Reserve monetary policy. Rate cuts would inject fresh liquidity into the global financial system — historically one of the most powerful tailwinds for risk assets, with crypto leading the charge. The mechanism is well documented: when the cost of capital falls, investors seek yield beyond bonds, and crypto markets benefit directly from that renewed appetite for risk.
The timing remains uncertain. The Fed is maintaining a cautious stance in the face of persistent inflation, and market expectations around the rate cut timeline have already been pushed back multiple times throughout 2024 and 2025. Every macroeconomic data release — CPI, NFP, PCE — has become a high-impact event for crypto sentiment, capable of triggering sharp moves in Bitcoin and altcoins alike.
For traders, the central scenario to watch is a convergence between an AI cooldown and a Fed pivot: if both factors materialize simultaneously, the conditions would be in place for a massive return of capital flows into the crypto market and potentially the ignition of a new bull run.
What Crypto Investors Should Watch in the Near Term
In this low-liquidity environment, several indicators deserve close attention. CoinGlass data on liquidations and derivatives open interest provides a reliable measure of the market’s actual exposure. Rising open interest combined with weak spot volumes is often a sign of a fragile market, one that could react violently to any macro catalyst.
On the on-chain side, inflows and outflows at centralized exchanges remain a dependable barometer of institutional sentiment. Quiet accumulation during periods of low volatility can precede significant price moves, as crypto market history has demonstrated on multiple occasions during pre-bull run accumulation phases.
Finally, the correlation between the Nasdaq and Bitcoin remains elevated in this constrained macro environment. Any signal of monetary easing from the Fed — even at the rhetorical level — could act as a trigger across crypto markets well before actual rate cuts take effect.
