After experiencing the worst Spring Festival in history, the crypto market seems a bit cold.
The Chinese New Year is celebrated by the whole nation, but the crypto industry is in a mess. It was thought that after Trump officially took office, the bright future of crypto was just around the corner, but on February 3, the crypto industry and even the global market received a heavy blow from the new president.
Against the backdrop of a new round of tariff wars launched by the United States, the global financial market has experienced a roller coaster ride. On the day of the news, all three major U.S. stock indexes closed down, and the Asia-Pacific market was significantly impacted. The South Korean stock market plummeted by more than 2.8%, the Japanese stock market fell by 2.48%, and the Hong Kong stock market fell by 1.9%. Although the tariff policy was announced to be postponed for one month on February 3 due to the subsequent concessions from Mexico and Canada, which eased the panic in the financial market, the crypto market was hit hard by uncertainty.
The price of BTC fell sharply at one point, hitting a low of $91,100, with a daily decline of about 7%. Ethereum plummeted 25% at one point, hitting a low of $2,080.19, reaching its lowest level in nearly a year. The top 200 tokens by market value generally fell, resulting in an epic liquidation. More than 720,000 people were liquidated on the day. According to industry insiders, about $8-10 billion was actually liquidated.
This incident seemed to be a watershed. Despite frequent positive news and the recovery of mainstream currencies, market sentiment still showed a high degree of fragility, currency prices fluctuated more violently, the copycat sector performed poorly, and even the previously strong AI sector fell silent due to the emergence of Deepseek.
Is the bull market over? This question is also gradually being discussed in the market.
In fact, in the context of the crypto market being highly dependent on incremental liquidity, the main points of contention in the current market are nothing more than the two major directions of the Federal Reserve’s monetary policy and Trump’s crypto policy.
The Federal Reserve's monetary policy is directed at global liquidity. The importance of this indicator can be seen from the hawkish stance of Powell in December last year that caused a market crash. For this reason, the world is showing unprecedented attention to US inflation.
In the early morning of January 30th, Beijing time, the Federal Reserve temporarily suspended the momentum of three consecutive interest rate cuts and maintained the target range of the federal funds rate at 4.25%-4.5%, in line with market expectations. Compared with the December 2024 interest rate statement, this statement deleted the statement that "labor market conditions have gradually eased", but emphasized that the unemployment rate remained at a low level. At the same time, the statement that "the inflation rate has made progress toward the 2% target set by the committee" was deleted.
On February 9, the U.S. Department of Labor released a non-farm report showing that the U.S. unemployment rate was 4% in January, with 143,000 new jobs. According to Fed Governor Kugler, this data shows that "the labor market is healthy and has neither weakened nor shown signs of overheating."
The market's reaction was obvious, and even the previously unnoticed University of Michigan data had a direct impact on prices. A survey released by the University of Michigan showed that consumers' expectations for inflation next year soared by a full percentage point to 4.3%, the highest level since November 2023.
Affected by this, Bitcoin's price, which had finally risen to $100,000, returned to the pre-liberation level and began to fluctuate around $96,000. ETH also remained around $2,700. Mainstream currencies performed poorly, and altcoins continued to fall.
From a macro perspective, the Fed's caution is understandable, especially since the tariffs launched by Trump after he took office have made global risk aversion increasingly strong. Various signs show that tariffs have become a good hammer in his hands, not only as a diplomatic means to achieve border security, but also as an economic means to promote the return of manufacturing, and further as a way to increase revenue and reduce the federal deficit.
After threatening to impose tariffs on its North American neighbors, the United States has already begun to take shape in a full-scale trade war. Although in the long run, as long as the United States controls the objects and products of taxation, such as conservatively treating trade tariffs on Canadian crude oil and Mexican agricultural products, other commodities can still be controlled, but the increase in tariffs coupled with the policy propositions of expelling illegal immigrants and embracing fossil energy will still make it difficult to avoid rising inflation.
In order to preventively deal with external uncertainties and give policies more room for maneuver, conservative wait-and-see is an objective strategy that the Fed needs to adopt. At present, most of the US money market believes that the Fed may cut interest rates in June or July, but the pricing for annual interest rate cuts has not yet reached two. Judging from the recent interest rate cut in March, CME's "Fed Watch" shows that the probability of the Fed keeping interest rates unchanged in March is 92%, and the probability of a 25 basis point interest rate cut is 8%. No interest rate cut in March has become a market consensus.
Uncertainty is not only external, but also internally. Under the banner of "spending cuts" waved by Musk's DOGE department, the domestic affairs of the United States are also becoming chaotic. The official website of the Consumer Financial Protection Bureau (CFPB), the highest financial regulator in the United States, was paralyzed for a time. Just a few days ago, Musk was calling for the impeachment of Paul Engelmayer, a federal district judge in New York, because the judge ordered the temporary restriction of the DOGE team's access to the payment system and sensitive data of the U.S. Treasury Department. Trump's authority is fully demonstrated under Musk's development, but the relatively subtle competitive relationship between the two is also being discussed by the market. All kinds of farces will only drive funds into safer areas.
Apart from the adverse macro effects, Trump's authority also has a bright future in cryptocurrencies. Institutional departments that once opposed cryptocurrencies are facing a comprehensive liquidation.
The SEC was the first to be affected. Gary Gensler's departure led to the resignation of several senior legal officials. The lawsuits and Wells notices that the industry once feared are also gradually fading away. The SEC has begun to reduce the size of its crypto enforcement department. The SEC's shift directly benefits ETFs, and altcoin ETFs are accelerating.
The SEC recently received a series of applications related to cryptocurrency ETFs, including the Litecoin ETF application submitted by Grayscale, and BlackRock's proposal to allow the iShares Bitcoin ETF to be physically created and redeemed. Cboe also submitted four ETFs designed to track the price of XRP for listing and trading. From the current point of view, due to the lack of participation from large capital giants such as BlackRock and Fidelity, the amount of funds raised by the altcoin ETF is not considerable, but physical redemption and the possible ETH pledge application will still significantly boost the subsequent sentiment.
The attitude of the Federal Deposit Insurance Corporation (FDIC) of the United States has also changed significantly. Previously, the agency would even pressure banks to refuse to provide services to crypto customers in order to cut off the connection between traditional finance and cryptocurrencies. But now, the FDIC has announced that it is actively re-evaluating its regulatory approach to cryptocurrency-related activities, including withdrawing and replacing the Financial Institution Letter (FIL) 16-2022, providing a compliance path for banking institutions to participate in cryptocurrency and blockchain-related activities while complying with the principles of security and soundness. This move means that cryptocurrencies are about to be integrated into the traditional financial system to expand the value chain, which not only enhances the security of the crypto field, but also lowers the threshold for individual users to participate in the crypto industry, laying a strong foundation for stablecoins, Payfi, BTCfi and other directions.
In addition to the two, the White House's cryptocurrency agency also brought better news. The head, David Sacks, upheld the slogan of "building a golden age of digital assets" and took on the Bitcoin reserve, a highly concerned issue in the market. According to his speech at the press conference, Bitcoin Reserve will be included in the research topic of the White House Digital Asset Working Group, and its feasibility will be evaluated within 180 days.
In addition to the top US officials, major states have also taken the lead in applying for Bitcoin strategic reserves. Fifteen states, including Alabama, Arizona, Florida, etc., have currently launched Bitcoin strategic reserve-related plans. Arizona and Utah have already transitioned to the stage of approval by both houses, and are only one step away from being approved as law.
From the White House's previous statements, the US national Bitcoin reserves focus more on the currencies already held rather than incremental purchases, but for the strategic reserves of the states, the imagination is better. Whether it is purchased by pension funds or public finances, this is real incremental funds, which will directly bring purchasing power, thereby giving more support to the currency price and a high probability of pushing up the Bitcoin price. At this stage, Trump's favorable policies are still continuing, and the US sovereign wealth fund under his executive order is also speculated by the market to be likely to purchase BTC.
Overall, Trump has spared no effort in supporting encryption since taking office. He has also invested in administration, supervision, and funding, and good news has come one after another. However, looking at the market, the bleakness of altcoins is visible to the naked eye, and the growth of BTC and ETH is not optimistic.
Ultimately, market sentiment is too fragile, macro expectations are eroding investors' confidence, risk aversion factors dominate investment, and turnover decreases. However, due to the existence of positive factors, the concentration area of mainstream currency chips is relatively stable and has not caused a big drop. Taking Bitcoin as an example, the support range of US$93,000-98,000 is prominent. Even if it briefly falls below 91,000 during the Spring Festival, it will recover quickly afterwards.
Judging from the movements of institutions, confidence in the future market remains. Although the market is in garbage time, institutions are still buying. According to SoSoValue data, from February 3 to February 7, Bitcoin spot ETF had a net inflow of US$204 million per week, of which BlackRock IBIT had a net inflow of US$315 million. At the same time, Ethereum spot ETF had a net inflow of US$420 million per week, and all nine ETFs had no net outflow. Since late January, the cumulative inflow of funds into Ethereum spot ETF has exceeded US$500 million.
Institutions are willing to invest and are obviously optimistic in the long term, especially ETH, which continues to be FUD. Although the market selling pressure is strong, from the layout of BlackRock, Fidelity, etc., ETH still has hype topics, whether it is pledge or RWA. From the market point of view, in the short term, due to the lack of strong positive factors, it is highly likely that Bitcoin will continue to fluctuate. It will repeatedly hover between the recent low of 90,000 and the high of 106,000. The possibility of a sharp decline is limited. On the contrary, the price of ETH, which lacks stabilizers, may fall further.
But altcoins are not so lucky. According to the data, the existing altcoin supply is obviously in excess. The total number of cryptocurrency tokens listed on CoinMarketCap is close to the 11 million mark, and there are more than 36 million altcoins in existence. In contrast, there were less than 3,000 altcoins in 2018 and 500 in 2013. Considering the current market funds, the structural misalignment of the supply and demand market is obvious.
On the other hand, Trump's own actions have also poured cold water on altcoins. The fact that Trump himself issued coins to make money has, to some extent, destroyed the radiation effect of the altcoin bull market that the industry originally believed in, leading to a further contraction of altcoin liquidity. Under the current liquidity, PVP has become a synonym for the industry. From this point of view, except for altcoins endorsed by large capital or hyped, the negative trend of other altcoins will continue in the short term. Even Trump has fallen to $16. If we want to return to the altcoin bull market, we may have to wait until the macro environment is more relaxed.
In this context, macroeconomic indicators still need to be paid attention to, and this week is a key week for the release of indicators. On February 11 and 12, the United States will announce the New York Fed's one-year and three-year inflation expectations for January, and Powell will also submit his twice-a-year monetary policy report to the U.S. Congress. The January CPI, core CPI, and PPI will also be announced on Thursday this week.
Being cautious and risk averse may be the best market operation at present.
