Author: Alea Research
Compiled by: Tim, PANews
In yesterday's report, we discussed several structural changes that have occurred in the Altcoin market over the past few months. As of now, with the US market yet to open, the total market capitalization of the Altcoin sector has fallen by nearly 9%, and BTC has dropped over 7% in the past 24 hours. Although BTC has rebounded to the $89,000 level after hitting a new low above $87,000, the current trend is showing signs of fatigue.
In today's report, we will once again examine the market trend, try to clarify the causes of the current Altcoin downtrend, and assess the necessary conditions for the market to regain a bullish sentiment.
Current Macro and Altcoin Environment
Over the past year, the overall trend of the Altcoin market has been highly correlated with BTC. Since the second quarter of 2024, BTC and Altcoins have entered a period of sideways consolidation for about half a year. With the arrival of the US presidential election in November as a catalyst, the entire Altcoin market has seen almost across-the-board gains. However, this pattern has recently reversed sharply, with a rapid divergence in the trends of BTC and Altcoins.
This sell-off does not have a clear trigger specific to the Altcoin sector. We have discussed in detail in our member newsletters and emails the Libra token collapse incident and the recent attack on Bybit. The chain reaction triggered by the Libra token has severely impacted the Solana ecosystem, with SOL token plummeting nearly 45% in the past month. The Bybit incident is now largely under control, with the exchange claiming to have raised enough ETH to fill the $1.4 billion funding gap.
There was even positive news yesterday: Citadel Securities announced that it will increase its investment in the Altcoin sector, which may be related to the gradual clarification of the regulatory environment.
Previously, Robinhood disclosed that a third of its Q4 revenue came from Altcoin services and plans to continue expanding in this area, but the market has reacted coolly to such positive news of traditional financial institutions entering the sector.
Citadel Securities announced that it will increase its investment in the Altcoin market-making sector
The current market may be more focused on news from the US government, taking a cautious stance on any policy developments that do not reach the "Strategic BTC Reserve" (SBR) level, and even viewing them as sell-off opportunities due to "good news exhaustion". This tendency can be seen from the market's reactions to the statements and executive orders of former President Trump, David Sacks (in charge of Altcoins and AI affairs), and Senator Cynthia Lummis regarding Altcoins.
The current market volatility is largely likely related to Trump's policies and the unexpected reactions they have triggered. In some ways, the former president's fulfillment of his campaign promises has shown a bipolar pattern: some policies central to market concerns have not been fully implemented, while others have seen unexpectedly rapid progress, and this contradiction is exacerbating market uncertainty.
1. Tariff Policy
Trump has repeatedly reversed course since taking office: first announcing tariffs on Canada and Mexico, then temporarily suspending them; then implementing a new metal tariff policy affecting the two countries; and recently claiming that he will ultimately impose full tariffs on them. This ever-changing approach not only increases market uncertainty, but may also lead to a "boy who cried wolf" policy credibility dilemma.
2. Immigration Policy
The Trump administration has deported fewer illegal immigrants than previous administrations. This may be a positive signal for the market, as large-scale and rapid deportation could lead to market disruptions in labor-intensive industries such as agriculture, residential construction, and services.
3. Foreign Policy
The Trump administration has shown a tendency to distance itself from Europe, bypassing regional countries like Ukraine to negotiate directly with Russia. While this may not be a major negative for the market, it has caught some observers off guard.
The market has always disliked uncertainty, and the Trump administration has fully demonstrated its ability to create uncertainty in its first month in office. Since the beginning of the year, US stocks have underperformed European stocks and US-listed Chinese stocks, with the Nasdaq index nearly falling into negative territory. This may reasonably explain why the Altcoin market has performed poorly in the first quarter: although Michael Saylor's "strategic hoarding" has provided liquidity support and ETF inflows, keeping BTC relatively high, the overall Altcoin market performance has still lagged significantly.
Shifting Targets, Debt over Equity?
The weak performance of both Altcoins and US stocks may be closely related to the Trump administration's policy shift towards lowering bond yields rather than boosting the stock market (not to mention BTC prices, as the White House has paid little attention to the overall Altcoin market performance).
If lowering bond market yields is viewed as the yardstick for policy success, the current situation may be more optimistic than the perception based solely on stock market performance.
Since Trump took office, the US 10-year Treasury yield has declined significantly. This indicator can serve as an alternative benchmark for assessing the long-term resilience of the US economy: lower interest rates can help reduce the cost of capital for homebuyers, large corporations, and other groups.
In the current macroeconomic environment, the US government needs to strike a balance between short-term interests and long-term goals, as a stock market frenzy may not align with the Trump team's definition of success. Over time, the market may gradually adapt to the unconventional operations of this administration. On the positive side, if regulatory barriers can be substantially removed (as hinted by DOGE), it may unleash more economic vitality. However, in the short to medium term, the federal government's large-scale layoffs and budget cuts may have a contractionary effect on the economy and divert some of the funds that could have been injected into the market.
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