Here is the English translation of the text, with the specified terms translated as requested:

Author: @Web3_Mario

Abstract: In recent days, the crypto market has experienced a significant correction, and the market is in a state of confusion, coupled with the continuous accumulation of negative news from the crypto industry due to massive hacker attacks, making it difficult to understand the recent market trends in the short term. The author has some views on this and hopes to share and discuss them. I believe that the main reasons for the current crypto market correction are twofold: First, from a micro perspective, the consecutive hacker attack incidents have caused concerns among traditional capital and heightened the risk-averse sentiment. Second, from a macro perspective, the DeepSeek open-source week further burst the US AI bubble, coupled with the actual policy direction of the Trump administration, which on the one hand triggered market concerns about US stagflation, and on the other hand initiated a re-evaluation of Chinese risk assets.

Micro Level: Consecutive Massive Capital Losses Have Triggered Concerns Among Traditional Capital About the Short-Term Trend of Crypto, Heightening Risk-Averse Sentiment

I believe everyone still has a fresh memory of the Bybit incident last week and the recent Infini theft incident, and there has been a lot of discussion about it, so I won't go into details here. Here, I will briefly discuss the impact of the stolen funds on these two companies and the impact on the industry. First, for Bybit, the $1.5 billion amount, although roughly equivalent to its annual net profit in terms of scale, is by no means a small sum for a company in the expansion stage. Typically, enterprises maintain a cash reserve of 3 months to 1 year, which is sufficient. Considering that the exchange business belongs to the high-cash-flow industry, its cash reserve is likely to be closer to the left level. If we look at Coinbase's 2024 financial report, we can get some preliminary judgments. In 2024, Coinbase's full-year revenue will more than double year-over-year to $6.564 billion, with a net profit of $2.6 billion, while total operating expenses will be $4.3 billion.

Referring to the data disclosed by Coinbase, and combined with Bybit's current expansion stage, its spending control will be more aggressive, and it is estimated that Bybit's cash flow reserve is basically in the range of $700 million to $1 billion. The loss of $1.5 billion in user funds is obviously beyond the reach of its own funds, and it will need to resort to methods such as borrowing funds, equity financing, or shareholder capital injection to get through this crisis. However, regardless of the model, considering the concerns about the lack of growth in the crypto market in 2025, the resulting cost of capital is likely to be considerable, which will also bring certain burdens to the company's future expansion.

Of course, I saw the news today that the core vulnerability was in Safe rather than Bybit itself, so there may be some incentive to recover some of the losses, but the important factor plaguing the crypto industry is the imperfect legal framework, so the related litigation process will definitely be lengthy and costly. It is unlikely to be an easy task to recover the losses. As for Infini, the $50 million loss is obviously unbearable for a startup, but it seems that the founders have strong financial strength and can overcome the difficulties through capital injection.

These two consecutive major losses may have become commonplace for crypto traders who are already accustomed to high-risk, but they have clearly shaken the trust of traditional capital. The capital outflow situation of the BTC ETF can clearly show the impact of the attack on the 21st on traditional investors, which is likely to be negative. If the concerns focus on whether it will hinder the development of a regulatory-friendly legal framework, then it is a serious matter. Therefore, it can be said that the theft incident is the trigger for this round of market correction at the micro level.

Macro Level: Intensified Geopolitical Game Between Major Countries, the DeepSeek Open-Source Week Reconstructing the Competitive Landscape of the AI Track, and the Resonance of Liquidity Migration Under the Re-Evaluation of Chinese Risk Assets

Now let's look at the macro-level impact, which is clearly unfavorable for the crypto market in the short term. In fact, after a period of observation, the policy direction of the Trump administration has become relatively clear, that is, through strategic contraction, to gain time and space for internal integration and industrial restructuring, so that the US can regain the ability of re-industrialization, because technology and production capacity are the core factors in the geopolitical competition between major countries. The most crucial factor in achieving this goal is "money", which is mainly reflected in the US's fiscal situation, financing capacity, and the real purchasing power of the US dollar, and the relationship between these three is mutually reinforcing. Therefore, observing the changes in the relevant process is not that easy, but by unraveling the clues, we can still find some core concerns:

1. The US fiscal deficit problem;

2. The risk of US stagflation;

3. The trend of the US dollar.

First, let's look at the first point, the US fiscal deficit problem. This problem has been analyzed in previous articles. In simple terms, the core reason for the current round of US fiscal deficit is to be traced back to the Biden administration's extraordinary economic stimulus bills to deal with the COVID-19 pandemic, as well as the Treasury Department represented by Yellen adjusting the US debt structure by over-issuing short-term debt, causing an inverted yield curve, thereby harvesting wealth globally.

The impact of the debt crisis is mainly on the US's creditworthiness, thereby reducing its financing capacity, in other words, the US government needs to pay a higher interest rate to finance through government bonds, which will raise the overall neutral interest rate of the US society, which cannot be influenced by the Federal Reserve's monetary policy. The raised neutral interest rate will put tremendous pressure on corporate operations, and the stagnation of economic growth will be transmitted to the general public through the job market, thereby triggering a negative feedback loop that leads to an economic recession.

The focus of observing this main line is on how the Trump administration will reshape the US government's fiscal discipline and solve the fiscal deficit problem. The specific policies involved are the efficiency department led by Musk's DOGE, the reduction of US government spending and the process of staff layoffs, as well as the impact on the economy during the process. Currently, the force of Trump's internal integration this round is very strong, and the reform has entered the deep water area. Here I will not go into the tracking of progress, but only introduce some of my own observation logic.

1. Pay attention to the degree of aggressiveness in the efficiency department's policy implementation, such as overly drastic layoffs and reductions, which will inevitably cause concerns about the economic outlook in the short term, which is usually unfavorable for risk assets.

2. Pay attention to the feedback of macroeconomic indicators on its policies, such as employment data and GDP data.

3. Pay attention to the progress of tax cut policies.

Here is the English translation of the text, with the specified terms translated as requested: We cannot underestimate the impact of government spending and government employees on the US economy. Typically, we would think that China's government spending as a percentage of GDP is certainly higher than the US, but this is actually a mistaken impression. The US government's spending accounts for 17.2% of GDP, while China's is 16.51%, and government spending is usually transmitted through the industrial chain multiplier to the entire economic system. The main structural difference between the two is that the US GDP has a very high consumption share, while China's GDP has a higher import and export share. This represents two different ways of stimulating the economy - for the US, expanding external demand and increasing exports is a means of boosting the economy, while for China, domestic demand still has great potential to be tapped. Regarding consumption, it is the same. In this chart, we can see that the wage level of the government sector is not low in the entire industrial chain, and the reduction of redundant government employees has also hit the economic growth on the consumption side. Therefore, overly aggressive policy promotion will certainly trigger a recession panic. Some things, if slowed down, can be resolved, but they also need to be coordinated with the overall policy advancement of the Trump administration. As for the promotion of tax cuts, it seems that Trump's focus is not on this for the time being, so the concerns about the short-term reduction in income are not yet obvious, but we still need to remain vigilant. Secondly, there is the concern about the US stagflation problem. Stagflation refers to the situation where economic growth stagnates while inflation accelerates, which is unacceptable in the misery index. In addition to the impact of government spending cuts on economic growth mentioned earlier, there are some other important points of concern: 1. How will DeepSeek further disrupt the AI track. 2. The progress of the US sovereign wealth fund. 3. The impact of tariff policies and geopolitical conflicts on inflation. Among them, the author believes that the first point will have the most significant impact in the short term. Those interested in technology may know that the open-source week of DeepSeek has produced extremely shocking results, all of which point to the fact that AI's demand for computing power has been greatly reduced. This is the reason why the stock market could maintain stability during the previous US interest rate hike cycle, which is due to the huge narrative of the AI track and the monopolistic position of the US in the upstream and downstream of the AI track. However, this will be reversed by DeepSeek, and DeepSeek's biggest impact is in two aspects: one is on the cost side, that is, it has greatly reduced the demand for computing power, which has led to a significant reduction in the growth potential of upstream computing power providers represented by Nvidia; the other is that it has broken the monopoly of the US on AI downstream algorithms through open-source means, thereby suppressing the valuation of algorithm providers represented by OpenAI. And this impact has just begun, and we need to see how the US AI industry will respond, but in the short term, the valuation of US AI stocks has already shown a pullback, and the valuation of Chinese technology stocks has also returned to normal. In fact, for a long time, the US has suppressed the valuation of Chinese companies through public opinion pressure, which has actually kept them in an undervalued state. However, benefiting from the grand narrative brought by DeepSeek's upgrade of China's manufacturing industry, as well as the relatively mild attitude of the Trump administration on China-related issues, which has reduced geopolitical risks, the valuations of Chinese and US companies have shown a return to normal. According to a report from CICC, the current surge in the Hong Kong stock market is mainly due to the influx of southbound capital, that is, capital from the mainland, as well as the influx of passive overseas capital. However, active overseas funds, subject to Trump's investment restrictions on Chinese companies, have not shown significant changes. But for the observation of liquidity, it is also very important, because there are many ways to bypass direct investment and enjoy the dividends of the revaluation of Chinese companies, such as investing in related markets like Singapore. The second point worth noting is the construction of the US sovereign wealth fund. We know that sovereign wealth funds are a good supplement to the government's financial resources, especially for countries with large trade surpluses in US dollars. The top 10 sovereign wealth funds in the world include 3 from China, 4 from the Middle East, and 2 from Singapore, with the largest being the Norwegian Government Pension Fund Global, with a total asset size of about $1.55 trillion. However, due to the influence of the US federal government's constitutional framework, the establishment of a sovereign wealth fund in the US is actually quite difficult, as the federal government can only receive direct taxes, and its financial resources are relatively limited. However, Trump seems to have instructed the Treasury Department to establish a trillion-dollar sovereign wealth fund, which is naturally also a means of alleviating the fiscal deficit. However, the problem here is where the money will come from and what it will be invested in. According to the remarks of the new US Treasury Secretary Yellen, it seems that they hope to reprice the US gold reserves to provide $750 billion in liquidity for the sovereign wealth fund. The reason behind this is that according to Section 31, Section 5117 of the US Code, the government's current 8,133 metric tons of gold have a statutory value of $42.22 per ounce, but if calculated at the current market price of $2,920 per ounce, the US government would have $750 billion in unrealized returns. So by amending the law, they can obtain additional liquidity, which has to be said to be a clever move. However, if this is approved, the dollars used for investment or debt relief will inevitably be obtained by selling gold, which will certainly have an impact on the gold price trend. As for what to invest in, the author believes that it is most likely to be centered around the goal of bringing production capacity back to the US, so the impact on Bitcoin is probably limited. In previous articles, the author has already analyzed that in the short to medium term, Bitcoin's value relative to the US is to become a hedge against economic downturn, which is based on the premise that the US has sufficient pricing power over this asset. But in the short term, the economy has not shown obvious signs of recession, so this is not the main focus of Trump's policy, but an important tool to get through the reform pains.

As for tariffs, the concerns about tariffs have actually been well addressed. Currently, it seems that the tariff policy is more of a bargaining chip in Trump's negotiations, rather than a necessary choice. This can be seen from the proportion of tariffs imposed on China, as Trump has been relatively restrained, considering the impact of high tariffs on domestic inflation. The next step that the author is more interested in is the tariffs on Europe, and what the US can get in return. Of course, the author is concerned about the process of the EU regaining its independence, as harvesting Europe to restore its own strength is the first step for the US to participate in this great power game. As for the inflation risk, although the CPI has been growing for several consecutive months, considering that the overall situation is still under control, and the mitigation of Trump's tariff policy, the current risk does not seem to be too large.

Finally, let's talk about the trend of the US dollar, which is a very critical issue that needs to be closely monitored. In fact, the debate over the strength and weakness of the US dollar under Trump's new term is ongoing, and the statements of some key figures have significantly impacted the market. For example, Stephen Mnuchin, the latest economic advisor appointed by Trump and the chief economic strategist of the White House, stated that the US needs a weak US dollar to boost exports and promote domestic re-industrialization. After causing market panic, US Treasury Secretary Mnuchin then tried to reassure the market on February 7, stating that the US will continue its "strong US dollar" policy, but the renminbi is a bit too undervalued.

In fact, this is an interesting issue. Let's look at the impact of a strong or weak US dollar on the US. First, a strong US dollar will have two main effects. Firstly, on asset prices. As the US dollar appreciates, dollar-denominated assets will perform better, which is mainly beneficial to US government bonds and the US stocks of global companies, as it increases the enthusiasm for the market to buy US bonds. Secondly, in the industrial sector, a stronger US dollar purchasing power benefits global US companies in terms of cost reduction, but suppresses the competitiveness of domestic industrial products in the international market, which is not conducive to domestic industrialization. The impact of a weak US dollar is the opposite. Considering Trump's overall policy design, which is based on industrial repatriation, capacity enhancement, and thus enhancing the competitiveness in the great power game, a weak US dollar policy seems to be the right solution. However, there is a problem - a weak US dollar will lead to a devaluation of dollar-denominated assets, and considering the current fragility of the US economy and financing pressure, a too-rapid weak US dollar policy may make it difficult for the US to overcome the pains of reform.

There is a representative event to illustrate this pressure. In Buffett's annual shareholder letter on February 25, he explicitly expressed his dissatisfaction with the US fiscal deficit problem, which obviously exacerbated market concerns. We know that Buffett's recent leverage strategy has been to clear out overvalued US risk assets and allocate more cash reserves to US short-term Treasuries, while also allocating some to the five major Japanese trading companies, which is obviously a form of interest rate arbitrage, but I don't need to go into that here. What I want to say is that Buffett's views have a very strong influence in the market, and capital that is overweight in the US dollar will naturally have a unified concern, which is the real purchasing power of the US dollar, that is, the concern about the devaluation of the US dollar. So the pressure to enter the devaluation channel too quickly is very large.

Nevertheless, using space to exchange time and gradually reducing debt will become the choice of both China and the US, and the trend of the US dollar will most likely follow a pattern of first strengthening and then weakening. The changes in dollar-denominated assets will also fluctuate with this cycle. Cryptocurrencies are also one of the assets affected by this wave.

Finally, I would like to share my thoughts on the crypto market. I believe that there are too many uncertain factors in the current market, so individual investors can choose a barbell strategy to enhance the anti-fragility of their investment portfolio. On the one hand, allocate to blue-chip cryptocurrencies or participate in some low-risk DeFi yields, and on the other hand, make small-scale allocations to some high-volatility targets when the market dips. As for the short-term market trend, the accumulation of many adverse factors has indeed led to certain price pressures, but there does not seem to be any clear structural risks, so if the market experiences an excessive correction due to panic, appropriate positioning may also be a good choice.