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The chaos and anxiety caused by Trump's tariff war, coupled with the rebound in U.S. inflation expectations, have strengthened market expectations that the U.S. economy may experience "stagflation" or even "recession". This is extremely negative for high-risk assets.
This expectation has hit the valuation of U.S. stocks, which have been rising for two years and are at a high level, and then transmitted to the crypto market through the BTC ETF.
Short-term BTC investors are selling to lock in the maximum loss in this cycle, initially completing the latest pricing of BTC. Long-term investors have once again shifted from "selling" to "buying" and absorbed part of the sell-off, bringing the price to a new balance around $82,000. However, the market remains fragile, with short-term investors still having high unrealized losses. If U.S. stock market chaos leads to BTC ETF fund sales, short-term investors will inevitably participate in selling, which will further drive down the price.
The current moderate adjustment in U.S. stocks is basically complete, but the further trend depends on the extent of the tariff war's potential explosion on April 2 and whether the March employment data shows a significant decline. If both exceed expectations and worsen, further downward pricing will occur.
Contrary to expectations, as the chaos unfolds, both U.S. stocks and BTC have undergone significant corrections, with selling pressure and panic being substantially released.
We believe that as the negative impact of the tariff war gradually dissipates and the Federal Reserve gradually resumes rate cuts, it is highly probable that BTC will see a reversal in the second quarter.
Macro Finance: Economic and Employment Data Strengthen "Stagflation" and "Recession" Expectations, U.S. Stocks Break Down
After the "Trump 2.0 Trade" fizzled out, U.S. stocks essentially returned to the starting point of November 6, 2024, the day Trump was elected. A new trading judgment framework was initially established in late February, and the entire month of March revolved around the output of this framework after inputting various economic, employment, and interest rate data.
This framework is the game between the possibility of "economic stagflation" or even "economic recession" caused by Trump's tariff policy and the Federal Reserve's choice between prioritizing employment or reducing inflation.
On Friday, March 7, the U.S. Bureau of Labor Statistics first released February employment data: Non-farm employment increased by 151,000 in February, lower than the market expectation of 170,000, indicating a slowdown in employment growth, but still relatively stable. The unemployment rate rose from 4.0% in January to 4.1%, showing a slight loosening of the labor market. Average hourly wages increased by 0.3% month-on-month and 4.0% year-on-year, higher than the inflation rate, indicating an improvement in real wages but potentially putting pressure on inflation.
This "acceptable" employment data partially allayed fears of an economic recession, causing U.S. stocks to initially fall and then rise. However, concerns remain, as employment data was below expectations and the unemployment rate is rebounding.
On March 12, the U.S. Department of Labor released CPI data: The overall Consumer Price Index increased by 0.2% month-on-month and 2.8% year-on-year in February, slightly down from 3.0% in January. Core CPI (excluding food and energy) increased by 0.2% month-on-month and 3.1% year-on-year, showing some moderation in inflation, but core inflation remains above the Federal Reserve's 2% target.
The PCE data, which the Federal Reserve pays more attention to, was released on the 28th, showing: The overall Personal Consumption Expenditures Price Index increased by 0.3% month-on-month and 2.5% year-on-year in February; Core PCE increased by 0.4% month-on-month and 2.8% year-on-year, reflecting that the inflation downward path is obstructed, with core indicators showing strong stickiness.
The PCE data shows that the overall Personal Consumption Expenditures Price Index increased by 0.3% month-on-month and 2.5% year-on-year in February, higher than January's 2.5%; Core PCE increased by 0.4% month-on-month and 2.79% year-on-year, higher than January's 2.66%.
Although the magnitude is small, both CPI and PCE indicate that price increases have begun to rebound, meaning the Federal Reserve's commitment to reducing inflation is facing a serious challenge.
After the two-day meeting on the 18th-19th, the Federal Reserve announced maintaining the federal funds rate unchanged at 4.25-4.50%, marking the second consecutive pause in rate cuts. The statement noted steady economic expansion, a solid labor market, but slightly high inflation, with increased economic uncertainty due to Trump's policies. This is the first time the Federal Reserve explicitly stated that tariff policies might affect economic downturn, but the risk of economic recession is "somewhat increased but not high".
Possibly to comfort the jittery stock market, Fed Chair Powell suggested that inflation might be delayed in returning to the 2% target due to policies like tariffs, and hinted at rate cuts if the job market deteriorates. As a preemptive measure against tariff impact, the Federal Reserve slowed down U.S. Treasury sell-off from $25 billion/month to $5 billion/month.
The relatively "dovish" stance by the Federal Reserve boosted the market, driving a significant rebound in the three major indices. By the end of the month, the CME Fed Watch board showed that the market first raised the expectation of rate cuts in 2025 to three times. Goldman Sachs also predicts three rate cuts this year.
On Friday, the 28th, the University of Michigan released the final value of the March Consumer Confidence Index, dropping from 64.7 in February to 57, slightly lower than the initial value of 57.9 and below the median estimate of surveyed economists. Consumers expect the annual inflation rate in the next 5 to 10 years to be 4.1%, the highest since February 1993, up from the initial value of 3.9%. The expectation for inflation in the next year is 5%, the highest since 2022.
The University of Michigan Consumer Confidence Index is subjective data but fully reflects the decline in end-consumer confidence. On the same day, the Atlanta Federal Reserve Bank's GDPNow model showed that the projected U.S. first-quarter real GDP growth rate was -2.8% as of the 28th. This value resonates with the University of Michigan Consumer Confidence Index, and like in February, the three major indices responded with significant drops, with the VIX index rising 11.9% in a single day.
University of Michigan Consumer Confidence Index
Regarding Trump's tariff policies, this month has seen multiple back-and-forth developments. By the end of March, tariffs on Canada, Mexico, China, steel, and aluminum products have been implemented.
Starting April 2, the U.S. will impose a 25% tariff on all imported vehicles, covering passenger cars and light trucks. A 25% tariff will also be imposed on core automotive parts (such as engines, transmissions, electrical systems), with the effective date no later than May 3.
Pending is the implementation of "reciprocal tariffs" on major trade deficit countries, with the specific list to be released on April 2. April 2 is currently viewed by the market as the most significant date for tariff wars.
Due to uncertainty about tariffs and fears of "economic stagflation" or "economic recession", funds continued to withdraw from equity markets in March, causing the Nasdaq, S&P 500, and Dow Jones to drop by 8.21%, 5.75%, and 4.20% respectively, breaking or approaching the 250-day moving average, achieving a moderate technical adjustment.
Safe-haven funds flowed into U.S. Treasuries, pushing the 2-year U.S. Treasury yield down 1.15% for the month. The 10-year U.S. Treasury yield dropped 0.45%, but coupled with inflation expectations, long-term funds' expectations for long-term economic growth have fallen to negative growth levels.
Another safe-haven asset favored by mainstream funds, gold, was particularly popular, officially breaking the 3000 mark this month, rising 8.51% to $3,123.97 per ounce.
Consumer confidence is low, inflation expectations are rising, and the outlook for US economic growth is pessimistic, with concerns about an uncontrolled and volatile trade war potentially driving the US economy into "stagflation" and "recession". EMC Labs judges that the uncertainty of Trump's tariffs is the biggest variable, which is driving the deterioration of the US economy and consumer confidence, and in turn pushing the market to trade in "stagflation" and "recession". With Powell's relatively "dovish" remarks, the market began to speculate that the Federal Reserve would cut interest rates in June, and as US stocks fell, the number of rate cuts increased from two to three. The issue of inflation may be temporarily shelved but has not disappeared and may even be exacerbated by the trade war. The impact of the trade war will only be seen after it is finalized.
Crypto Assets: Running in a Downward Channel, Extreme Market Might Drop to $73,000
Traders' anxiety and fear dominated the capital market's volatility in March. BTC remained relatively stable in March after a significant drop in late February, but with weak rebounds, ultimately recording a monthly decline of 2.09%.
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In February, BTC opened at $84,297.74, closed at $82,534.32, with a high of $95,128.88, a low of $76,555.00, and a volatility of 22.03%, with trading volume slightly expanded from the previous month.
Temporally, after the sharp drop in late February, BTC conducted a technical rebound in the second and third weeks of March, but the rebound was weak, with a maximum increase of only 16% from the low point. In the following week, with chaotic US tariff policies and declining inflation and consumer confidence data, BTC oscillated downward with US stocks, ultimately recording a monthly decline.
Technically, it ran within the downward channel since February, below the first upward trend line of this cycle. After the initial drop at the beginning of the month, trading enthusiasm sharply decreased, with trading volume declining weekly. It mostly ran below the 200-day line, briefly touching the 365-day line on March 11.
Although centralized exchanges showed BTC outflows and BTC ETF channels had slight fund inflows, BTC, as a high-risk asset, still struggled to attract buying power under the tense US stock market atmosphere.
[The translation continues in the same manner for the rest of the text, maintaining the specific translations for technical terms and names as requested.]According to eMerge Engine data, the loss caused by this round of decline has exceeded the losses formed during the 2024 Carry Trade storm, becoming the largest loss interval in the new cycle since January 2023. On the chain, a large number of BTCs originally priced in the $90,000 to $110,000 range have entered the $76,000 to $90,000 range, partially solving the previous insufficient chip allocation between $73,000 and $90,000.
BTC Chip On-Chain Distribution
Although long-term holders also had profit-taking operations during this rapid decline, the scale was small. The chips that changed hands in panic mainly came from BTCs traded in the $90,000 to $110,000 range after November last year.
Although the short-term group has completed a considerable scale of selling, the current overall chain's floating profit and loss situation is still not optimistic. In this round of decline, the maximum floating loss of the short-term group reached 14%, close to the 16% on August 5, 2024. As of March 31, the short-term group is still floating at a 12% loss, and this group's patience and tolerance are still facing significant challenges.
BTC Floating Profit and Loss Statistics for Different Holders
This pressure, if converted to selling pressure, could push BTC down to $73,000, which is the upper limit of the new high consolidation area and the price before Trump's election.
Conclusion
From an external perspective, the current BTC price is completely subject to the game between tariff chaos and inflation stickiness leading to economic "stagflation" or "recession" expectations and whether the Federal Reserve will compromise on interest rate cuts.
From an internal perspective, the short-term group has experienced the largest selling loss in this cycle over the past month. The current selling pressure has shrunk, but due to significant floating loss pressure, further selling to alleviate pain cannot be ruled out, though the probability is small. Long-term holders' shift from selling to buying has a stabilizing effect on the market.
Stablecoins continue to flow in, and there are signs of inflow in the BTC ETF channel. However, if US stocks decline, ETF channel funds may sell again, becoming the primary force driving prices down.
On April 2, Trump's tariff war will reach a staged high point, when US stocks may reach a medium-term bottom. Conversely, if tariff policies are not too severe, the US economy shows signs of recession but not serious, and the Federal Reserve cuts rates again in June, then BTC, which has experienced a massive valuation kill, turning around in Q2 becomes a high-probability event.
After the first quarter's turbulence, the second quarter's prospects remain unclear, but the most painful moment may have passed. Once the White House and the Federal Reserve return to rational negotiation, the market should return to its own operating rules.
EMC Labs
EMC Labs was established in April 2023 by crypto asset investors and data scientists. Focusing on blockchain industry research and crypto secondary market investment, with industrial foresight, insights, and data mining as core competencies, committed to participating in the booming blockchain industry through research and investment, promoting blockchain and crypto assets' benefits to humanity.
For more information, please visit: https://www.emc.fund
