In yesterday's report, we discussed several structural changes that have occurred in the cryptocurrency market in recent months. As of now, with the US market yet to open, the total market capitalization of the crypto sector has fallen by nearly 9%, with Bit dropping more than 7% in the past 24 hours. Although Bit 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 Crypto Environment

Over the past year, the overall trend of the crypto market has been highly correlated with Bit. Since the second quarter of 2024, Bit and Altcoins have entered a period of sideways consolidation for about half a year. With the arrival of the November US election as a catalyst, the entire crypto market has seen almost across-the-board gains. However, this pattern has recently taken a sharp turn, with Bit and Altcoins showing a rapid divergence in their performance.

This sell-off does not have a clear trigger pointing to the crypto sector. We have discussed in detail the Libra token collapse incident and the recent attack on Bybit in our member communications and emails. The chain reaction triggered by the Libra token has severely impacted the Solana ecosystem, with the SOL token plummeting nearly 45% in the past month. The Bybit incident has now been largely brought 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: Castle Securities announced that it will increase its investment in the crypto sector, which may be related to the gradual clarification of the regulatory environment.

Previously, Robinhood disclosed that one-third of its fourth-quarter revenue came from crypto services and that it plans to continue expanding in this area, but the market has reacted coolly to such positive news about traditional financial institutions entering the sector.

Castle 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, holding a reserved attitude towards any policy initiatives that do not reach the "Strategic Bit 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 reaction to the statements and executive orders on Altcoins from figures such as former President Trump, David Sacks, the manager of crypto and AI affairs, and Senator Cynthia Lummis.

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 delivery on his campaign promises has shown a polarized pattern: while some policies central to market concerns have fallen short, others have seen unexpectedly rapid progress, and this contradiction is exacerbating market uncertainty.

1. Tariff Policy

Trump has repeatedly reversed himself since taking office: first announcing tariffs on Canada and Mexico, then temporarily suspending them; then implementing a new metal tariff policy affecting both countries; and most recently declaring that he will ultimately impose full tariffs on these two countries. This flip-flopping approach not only increases market uncertainty but may also lead to a "boy who cried wolf" policy credibility crisis.

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, rapid deportations 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 crypto market has performed poorly in the first quarter: although Michael Saylor's "strategic Bit hoarding" has provided liquidity support and ETF inflows, keeping Bit relatively high, the overall crypto market performance has still lagged significantly.

Shifting Targets, Prioritizing Debt over Equity?

The weak performance of both the crypto and US stock markets may be closely related to the Trump administration's policy shift towards lowering bond yields rather than boosting the stock market (not to mention Bit prices, as the White House has paid little attention to the overall performance of the crypto market).

If lowering the bond market yield is seen as a measure of policy success, the current situation may be more optimistic than the perception based solely on stock market performance.

Since Trump took office, the yield on the US 10-year Treasury bond 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 groups such as homebuyers and large corporations.

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 the current 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.