Has the crypto market entered a winter? Macroeconomic environment and policy changes provoke industry reflection

During the Spring Festival, the crypto market experienced a highly turbulent period. After the new president took office, the global financial markets faced a huge shock. The US stock market and the Asia-Pacific market both saw varying degrees of decline, while the crypto market suffered an even more severe blow.

The price of Bitcoin has plummeted significantly, dropping to $91,100 at one point, with a daily decline of about 7%. Ethereum has fallen even more sharply by 25%, reaching a nearly one-year low of $2,080.19. Tokens ranked in the top 200 by market capitalization are generally down, triggering a massive liquidation event. It is estimated that about $8-10 billion has been liquidated.

This event seems to have become a turning point for the market. Although some positive news emerged afterward, and mainstream cryptocurrencies showed some recovery, market sentiment remains fragile, and price fluctuations have intensified. The altcoin sector is performing poorly, and even the AI-related tokens that previously showed strong performance have lost momentum.

In the current market environment, investors' focus is primarily on two aspects: the Federal Reserve's monetary policy and the new government's encryption policy. The Federal Reserve's decisions directly impact global liquidity, and the hawkish stance in December of last year had previously led to a significant market decline. As a result, global attention to U.S. inflation data has reached unprecedented heights.

The recent decisions of the Federal Reserve show a cautious attitude. They paused the previous series of interest rate cuts, kept the rates unchanged, and made subtle adjustments to their description of the labor market and inflation conditions. The latest non-farm payroll report and the University of Michigan's inflation expectations survey have both had a significant impact on the market.

From a macro perspective, the Federal Reserve's cautious stance is understandable. The tariff policies implemented by the new government have triggered a rise in global risk aversion. This policy could serve not only as a diplomatic tool but also to promote the return of manufacturing and reduce the federal deficit. However, these measures may lead to an increase in inflation rates.

In light of external uncertainties and the consideration of maintaining policy flexibility, it is reasonable for the Federal Reserve to adopt a wait-and-see approach. Currently, the market generally expects that the Federal Reserve may begin to cut interest rates in June or July of this year, but the expectation for the total number of interest rate cuts throughout the year has not yet reached two.

In addition to macroeconomic factors, changes in the policy environment have also brought some positive signals to the crypto market. The new government has adopted a more friendly attitude towards certain regulatory agencies, which may bring new opportunities for the encryption industry. For example, the SEC has begun to scale down the size of its crypto enforcement division, directly promoting the development of the ETF market. At the same time, the FDIC is reevaluating its regulatory approach to crypto-related activities, which may pave the way for cryptocurrencies to integrate into the traditional financial system.

The newly established digital asset working group at the White House has also brought some positive news, including the study of the feasibility of Bitcoin reserves. Several states have begun to promote Bitcoin strategic reserve plans, which could bring new incremental funds to the crypto market.

Although there are favorable news on the policy front, the market response remains cautious. Altcoins are showing weak performance, and the rally of mainstream cryptocurrencies is not strong enough. This reflects that investor sentiment is still fragile, with risk aversion dominating investment decisions.

From the perspective of institutional investors, long-term confidence still exists. Despite the market being in a downturn, institutional investors continue to buy. Both Bitcoin and Ethereum spot ETFs have recently seen significant net inflows.

Looking ahead, Bitcoin may fluctuate between $90,000 and $106,000 in the short term. Ethereum may see further declines in price due to a lack of stabilizing factors. The challenges facing the altcoin market are greater, as oversupply and insufficient liquidity may continue to suppress its performance.

In the current market environment, investors need to closely monitor the upcoming economic indicators, including inflation expectations, CPI, and PPI data. Caution and hedging may be the best market strategies at this time.