After experiencing the most painful Spring Festival in history, the cryptocurrency market seems to be a bit cold.
While the Chinese people celebrated the Spring Festival nationwide, the cryptocurrency market was in a mess. It was expected that the crypto industry would have a bright future after Trump's inauguration, but on February 3, the new president dealt a heavy blow to the crypto industry and the global market.
Against the backdrop of a new round of tariff wars in the United States, global financial markets have experienced a roller coaster ride. On the day of the news, the three major US stock indexes all closed lower, the Asia-Pacific market was significantly impacted, the Korean stock market plummeted more than 2.8%, the Japanese stock market fell 2.48%, and the Hong Kong stock market fell 1.9%. Although the tariff policy was announced to be postponed for a month due to the subsequent softening of Mexico and Canada, allowing the financial market to calm down, the cryptocurrency market was hit hard by the uncertainty.
The BTC price once plummeted sharply, reaching a low of $91,100, a drop of about 7% intraday. Ethereum once plummeted 25%, reaching a low of $2,080.19, the lowest level in nearly a year. The tokens ranked in the top 200 by market cap generally fell, and a historic liquidation event occurred, with more than 720,000 people being liquidated that day. According to industry insiders, an estimated $8-10 billion was actually liquidated.
This event seems to have become a watershed. Although the news has been positive and the mainstream currencies have also warmed up, the market sentiment still shows high fragility, and the volatility of coin prices has become more violent. The altcoin sector has performed poorly, and even the previously strong AI sector has fallen into silence due to the emergence of Deepseek.
Has the bull market come to an end? This question is gradually fermenting in the market discussion.
In fact, in the context of the cryptocurrency market's high dependence on liquidity increments, the current market's main battleground is nothing more than the two directions of the Federal Reserve's monetary policy and Trump's cryptocurrency policy.
The Federal Reserve's monetary policy is oriented towards global liquidity. The market's sharp decline in December due to Powell's hawkish stance shows the importance of this indicator. It is precisely because of this that the world is showing unprecedented attention to US inflation.
On the early morning of January 30th Beijing time, the Federal Reserve paused the momentum of three consecutive rate cuts, maintaining the target range for the federal funds rate at 4.25%-4.5%, in line with market expectations. Compared to the December 2024 policy statement, the current statement has removed the description that "labor market conditions have eased", but emphasizes that the unemployment rate remains at a relatively low level. At the same time, the statement that "the inflation rate has made progress towards the committee's 2% target" has been removed.
And on February 9th, the US Department of Labor's non-farm payroll report showed that the US unemployment rate in January was 4%, with 143,000 new jobs added. According to Federal Reserve Governor Kugler's assessment, this data indicates that "the state of the labor market is healthy, neither weakening nor showing signs of overheating."
The market's reaction to the news is very obvious. Even the Michigan consumer data, which was not previously focused on, has had a direct impact on prices. A survey released by the University of Michigan showed that consumers' expectations for inflation next year have soared by a full percentage point to 4.3%, the highest level since November 2023.
As a result, Bitcoin, which had just managed to rise to $100,000, returned to pre-liberation levels, fluctuating around $96,000. ETH has been hovering around $2,700, with poor performance of mainstream currencies and continued decline of altcoins.
From a macro perspective, the Federal Reserve's caution is understandable, especially after Trump took office and unleashed a tariff barrage, making the global risk aversion sentiment increasingly strong. All signs indicate 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 launching tariff threats against its North American neighbors, the outlines of a full-scale US trade war have emerged. Although in the long run, as long as the US controls the targets and products of tariffs, such as being conservative in trade tariffs on Canadian crude oil and Mexican agricultural products, other commodities can still be controlled, the rise in inflation is still highly likely to be unavoidable due to the accumulation of tariffs, the expulsion of illegal immigrants, and the embrace of fossil energy policies.
To proactively respond to external uncertainties and provide more maneuvering space for policies, a conservative wait-and-see approach is the objective strategy the Federal Reserve needs to take. Currently, the US money market generally believes that the Federal Reserve may cut interest rates in June or July, but the pricing for two rate cuts throughout the year has not yet been reached. Looking at the recent March rate cut, the CME "Fed Watch" shows a 92% probability that the Federal Reserve will keep rates unchanged in March, and an 8% probability of a 25 basis point rate cut, with no rate cut in March becoming a market consensus.
Uncertainty is not only in the external environment, but also not calm within. Under Musk's "cost-cutting" banner in the DOGE department, US domestic politics is also becoming chaotic. The official website of the US Consumer Financial Protection Bureau (CFPB), the highest financial regulatory agency, was once paralyzed. And just recently, Musk is calling for the impeachment of New York Federal District Judge Paul Engelmayer, because the judge ordered a temporary restriction on the DOGE team's access to the US Treasury's payment system and sensitive data. Trump's authority is fully demonstrated in Musk's promotion, but the relatively subtle competitive and cooperative relationship between the two is also being discussed in the market. These various farces will only drive capital to flow into safer areas.
In addition to the adverse macro impact, Trump's authority also has a bright side in the crypto field, as institutions and departments that once opposed crypto are now facing a comprehensive liquidation.
The SEC is at the forefront, with the departure of Gary Gensler and the resignation of several senior legal officers under him. The lawsuits and Wells notices that once terrified the industry are also gradually fading away, and the SEC has begun to reduce the scale of its crypto law enforcement department. The SEC's shift is directly beneficial to ETFs, with altcoin ETFs accelerating.
The SEC has recently received a series of applications related to cryptocurrency ETFs, including Grayscale's Litecoin ETF application and BlackRock's proposal to allow iShares Bitcoin ETF to conduct physical creation and redemption. Cboe has also submitted applications for the listing and trading of four ETFs aimed at tracking the XRP price. From the current situation, due to the lack of participation of large capital giants such as BlackRock and Fidelity, the scale of altcoin ETFs may not be impressive even if they are approved, but the physical redemption and the possible emergence of ETH staking applications will still have a significant boost to the subsequent sentiment.
The attitude of the Federal Deposit Insurance Corporation (FDIC) has also changed significantly. Previously, the agency even put pressure on 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 crypto-related activities, including withdrawing and replacing FIL-16-2022, to provide a compliance path for banking institutions to participate in crypto and blockchain-related activities while adhering to principles of safety and soundness. This 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 solid foundation for stablecoins, Payfi, BTCfi and other directions.
In addition to these, the crypto-related departments in the White House have also brought better news. The person in charge, David Sacks, is carrying the banner of "building the golden age of digital assets" and has taken on the highly concerned issue of Bitcoin reserves. According to his remarks at the press conference, the Bitcoin Reserve will be included in the research agenda of the White House Digital Assets Working Group, and its feasibility will be evaluated within 180 days.
In addition to the top U.S. officials, various states have also initiated applications for Bitcoin strategic reserves, including 15 states such as Alabama, Arizona, and Florida, with Arizona and Utah already in the stage of legislative approval, just one step away from becoming law.
From the previous statements by the White House, the U.S. national-level Bitcoin reserves focus more on the existing holdings rather than incremental purchases, but the strategic reserves of the states are more optimistic, whether through pension fund purchases or public finance purchases, these are real incremental funds that will directly bring purchasing power and are likely to push up the Bitcoin price. At this stage, Trump's policy support is still ongoing, and the U.S. sovereign wealth fund under his executive order is also speculated by the market to potentially purchase BTC.
Overall, Trump's support for cryptocurrencies after taking office can be said to be unwavering, with investments in the administrative, regulatory, and funding directions, and a stream of positive news. However, looking at the market, the dismal performance of Altcoins is visible to the naked eye, and the upward trends of BTC and ETH are also not optimistic.
Fundamentally, the market sentiment is too fragile, with macroeconomic expectations eroding investor confidence, risk aversion factors dominating investments, and reduced turnover. However, due to the existence of positive news, the mainstream currency chip concentration area is relatively stable and has not led to a major decline. Taking Bitcoin as an example, the support in the range of $93,000-$98,000 is prominent, and even if it briefly fell below $91,000 during the Spring Festival, it will quickly recover.
Institutions are still willing to invest, and are obviously optimistic in the long run, especially for the continuously FUD-ed ETH. Although the market selling pressure is strong, in terms of the layouts of BlackRock and Fidelity, whether it is staking or RWA, ETH still has room for speculation. From the market perspective, in the short term, due to the lack of strong positive news, it is highly likely that Bitcoin will fluctuate between the recent low of $90,000 and the high of $106,000, with limited downside potential, while the price of ETH, lacking a stabilizer, may further decline.
However, Altcoins are not so lucky. In terms of data, the current Altcoin supply is obviously oversupplied, with the total number of cryptocurrency tokens listed on CoinMarketCap approaching 11 million, while the existing Altcoins exceed 36 million, compared to less than 3,000 in 2018 and 500 in 2013, a huge disparity. Considering the current market capital, the structural mismatch in the supply and demand market is obvious.
On the other hand, Trump's own actions have also poured a bucket of cold water on Altcoins. His own issuance of tokens to fleece the farmers to some extent has disrupted the industry's original belief in the Altcoin bull market radiation effect, leading to further contraction of Altcoin liquidity, and PVP becoming the industry's byword under the current liquidity. Considering this, except for Altcoins backed by large capital or with speculative themes, the negative trend of other Altcoins will continue in the short term, with even Trump falling to $16, and the return to the Altcoin bull market may only come when the macroeconomic environment becomes more relaxed.
Against this backdrop, macroeconomic indicators still need to be closely watched, with this week being a key week for indicator releases. On February 11 and 12, the U.S. will release the 1-year and 3-year inflation expectations of the New York Fed, and Powell will also submit the semi-annual monetary policy report to the U.S. Congress, while January CPI, core CPI, and PPI will also be announced this Thursday.
Prudent risk aversion may be the best market operation at the moment.
