The crypto market is in the midst of violent turmoil. In February, Bitcoin plummeted 17.39%, marking the worst February performance since 2014 and the second-worst February on record. Entering March, the market remains weak, with Bitcoin repeatedly breaking through multiple key support levels, essentially returning to the level it was at when Trump won the election. Since reaching an all-time high on December 16, 2024, the total crypto market capitalization has fallen by more than 30%, and trading volume has declined by nearly 60%. The exhaustion of short-term positive factors and macroeconomic risks are triggering widespread panic in the market.
Exhaustion of Short-Term Positive Factors
The market currently lacks any visible substantial positive factors, and market confidence has been severely undermined. The much-anticipated Bitcoin strategic reserve plan was finalized last week, but the reserve was obtained through confiscation procedures rather than direct government purchases. This means that the market has not seen any new buying power, and the market's expectations for "US government policy support" have been further diminished, leaving it greatly disappointed.
Furthermore, the first Crypto Summit held at the White House last Friday did not bring any substantive results. According to reports, the entire event did not release any specific policy documents, nor did it provide a clear guarantee or timeline for direct purchases of new cryptocurrencies. Most of the speeches were merely expressions of gratitude to Trump and praise for his "wisdom and might", with no policy support that the market had expected.
Compared to the market frenzy and grand policy imagination space at the time of Trump's election, the short-term driving force in the crypto market has almost disappeared, and even the imagination space is lacking.
Macroeconomic Uncertainty Weighs on Risk Assets
External macroeconomic uncertainty is adding variables to the market, with Trump's erratic tariff policies repeatedly striking the market, also strengthening the market's expectations of slowing economic growth and rising inflation.
As Trump introduces a series of tariffs, prices of various goods from food to clothing are expected to rise, which will test the resilience of consumers and the overall economy. Goldman Sachs' model shows that the risk of recession is rising, from 14% in January to 23%. JPMorgan's similar model also indicates that the market-implied probability of recession has risen from 17% at the end of November to 31%.
As the market becomes increasingly weary of uncertainty, risk assets continue to decline. The collapse of tech stocks has forced investors to accelerate the reduction of their crypto currency risk exposure. According to coinglass data, Bitcoin spot ETFs have seen net outflows almost every day since March, with a total net outflow of over $1.35 billion.
CPI Cools, but the Data May Be Temporary
The only good news in the recent major macroeconomic data is the release of the US February CPI last night, which came in lower than expected across the board, easing market concerns about the US economy potentially falling into a stagflation trap. The strong rebound in tech stocks drove the Nasdaq up more than 1.2%, and Bitcoin also rebounded 2%. However, it should be noted that Trump's tariffs have not yet fully fed into the CPI.
Trump's tariff batons have so far mainly fallen on China - a 20% tariff on all Chinese goods (an additional 10% on February 4, and another 10% on March 4), while the tariffs on Canada and Mexico are still at the threat stage and have not been implemented.
The average shipping time from China to the US is 25-35 days, and the goods currently being sold in US retail are mostly non-tariff inventory. The taxed goods are expected to enter end-user sales starting from March-April. Therefore, if the market only focuses on the February data and believes that "the worst is over", it may be premature. The limited gains in the Dow and S&P after the CPI data release reflect the market's cautious sentiment.
If Trump's tariff policy continues to expand and a tariff war breaks out with more countries, the subsequent CPI is likely to face greater shocks.
Whether the market has entered a bear market is still inconclusive. In the short term, the crypto market has lost its internal catalysts such as "ETF capital inflows" and "policy support", while being exposed to the dual pressures of the escalating tariff war and the risk of US economic stagflation. The market, dominated by risk aversion sentiment, is extremely fragile, and the upward momentum may be difficult to sustain in the short term unless there are key policy adjustments or favorable economic conditions.
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