Trump’s first month in office, the market performs "A Song of Ice and Fire"

In January and February 2025, as Trump 2.0 marks its first month in office, policy dividends coexist with market turbulence. On one hand, the new government releases positive signals; on the other hand, breakthroughs in the AI field trigger severe fluctuations in the financial markets. Especially in February, with the release of key economic data, adjustments in regulatory frameworks, and accelerated technological iterations, the crypto market undergoes a series of shocks and cleansing.

In February 2025, the macroeconomic situation in the United States underwent significant changes. A series of key economic indicators declined, while the new government vigorously implemented policies to raise import tariffs. These two factors interacted with each other, having a profound impact on the U.S. and even the global economy, triggering turmoil in global markets.

Despite the U.S. fourth-quarter GDP revision maintaining a robust growth rate of 2.3%, multiple indicators suggest that the U.S. economy has entered a "low growth channel." The labor market has noticeably cooled: in February, non-farm payrolls added 187,000 jobs, below the expected 200,000, and the month-on-month growth rate of hourly wages slowed to 0.2%, the lowest level since October 2023. Additionally, the University of Michigan Consumer Confidence Index has unusually deteriorated for the third consecutive month, falling to 98.3, reflecting the growing anxiety among residents about the decline in real purchasing power.

In January, the core CPI in the United States rose by 0.3% month-on-month and increased by 2.5% year-on-year, with the year-on-year growth rate down by 0.1 percentage points compared to December last year, indicating a slight "cooling" of the pessimistic inflation. The year-on-year core Personal Consumption Expenditures (PCE) price index for January recorded 2.6%, the lowest since June 2024, in line with market expectations, making it one of the few pieces of good news.

However, the tariff war will become the biggest uncertainty factor for inflation in the United States. The new government announced a 10% tariff on imports from Mexico and Canada (effective March 4), directly raising costs for key categories such as automobiles and agricultural products. According to estimates from the Cleveland Federal Reserve model, this policy could raise the U.S. CPI by an additional 0.3 to 0.5 percentage points in the second quarter.

In terms of interest rates, it is currently widely expected that the Federal Reserve's policy rate will remain unchanged temporarily. According to data platforms, the probability of the Federal Reserve maintaining the interest rate unchanged in March is 95.5%, while the probability of a 25 basis point rate cut is 4.5%. By May, the probability of keeping the current interest rate unchanged is 73.2%, the cumulative probability of a 25 basis point rate cut is 25.8%, and the cumulative probability of a 50 basis point rate cut is 1.1%. However, given the uncertainty of inflation and the potential inflation pressures brought by tariff policies, the Federal Reserve's decision to cut interest rates still has uncertainties.

The core contradiction of the U.S. economy in 2025 lies in the tug-of-war between "slowing growth" and "inflation resilience." The Federal Reserve tries to balance risks through prudent monetary policy, while a series of tariff increases by the new government exacerbates the complexity of this issue and continues to impact the pricing logic of the global supply chain, amplifying global economic turbulence. Historical experience shows that trade protectionism often struggles to genuinely resolve structural economic problems. Finding certainty in the policy game will be the central proposition for the global market in the next six months.

In the first two months of 2025, the hottest topic in the AI field is undoubtedly the emergence of a certain AI company, and the greatest impact this company has had on the US stock market is breaking the previous market expectations for the future narrative of AI.

As the AI market has developed to this point, a bubble is inevitable. This emerging AI company has punctured part of the AI bubble, as its open-source model significantly reduces computational power dependency through algorithm optimization, pushing the industry from a "computational power race" to an "algorithm efficiency" transformation, reshaping the market's demand logic for AI infrastructure. For example, the company's latest model completed training using only 2048 H800 GPUs, while traditional models require tens of thousands of similar chips, directly shaking the narrative of the "moat" supported by the high capital expenditures of American tech giants.

This shock, combined with concerns over global supply chain turmoil caused by the new government's tariff policies, has hit technology stocks, which are the most globalized sector, the hardest. The entire U.S. stock market has shown a sluggish state: throughout February, the Nasdaq was most severely affected due to the high weight of technology stocks, plunging 4%, wiping out the gains accumulated in the year, marking the worst monthly performance since April 2024; the Dow Jones, due to the large proportion of traditional industries, was relatively resilient, with a cumulative decline of 1.58%, while the S&P 500 fell in between the two, dropping 1.42%.

The market's reassessment of the competitive landscape of the U.S. AI industry has become apparent, which is directly reflected in the performance of the big 7 in U.S. stocks. From the earnings reports, the latest earnings reports of the big 7 do not have any particularly noteworthy aspects; even the most outstanding chip company did not significantly exceed expectations, leading investors to take profits and triggering a sell-off. Overall, the market currently lacks a clear trading direction, and the performance of big 7 stocks shows characteristics of "end-of-month policies and emotions driving a sharp decline." To summarize it in the words of an analyst from a certain investment group — "Looking around, fear has indeed become a collective emotion."

In this environment of low market sentiment, crypto assets are also bound to become innocent victims. According to data, the six-month rolling correlation index between Bitcoin and Nasdaq has recently risen to 0.5, setting a new high since 2023, which indicates increased volatility in US stocks and a more apparent impact on the crypto market. Once the stock market experiences fluctuations or even panic due to unexpected variables such as emerging AI companies, investor risk appetite decreases, leading many to withdraw funds from risk assets in the crypto market, which can easily result in downward price pressure on the crypto market. This chain reaction highlights the market's "over-defensive" mentality towards the impact of AI and policy uncertainty.

With the new government taking office, the cryptocurrency policy of the new U.S. administration has shifted from campaign promises to substantive actions. A new official has taken charge, and the hottest topic at the moment is probably the announcement made by the new president on January 18th to launch the official Meme token.

The market value of the token once surpassed $14.5 billion, followed by a subsequent drop of 60%. This wave of market speculation has made a group of people wealthy, while others have suffered severe asset depreciation. A deeper insight from this event is that cryptocurrency is radiating from the financial sector to the political arena. If the approval of a Bitcoin spot ETF by the US SEC is a milestone for cryptocurrency entering the traditional financial sector, then this token issuance serves as evidence of cryptocurrency stepping into the political realm, as it directly transforms political influence into market liquidity through operations like "token swaps," demonstrating the potential of crypto assets as a new political tool. Whether it's multiple US states competing to advance Bitcoin reserve bills or the EU's MiCA framework accelerating compliance processes, the important thread of "code is power" runs through the global regulatory game.

In addition to this coin issuance, the crypto community continues to pay attention to the degree of fulfillment of new government policies. After the inauguration of the new U.S. government, the crypto sector has welcomed many favorable developments, such as the establishment of a cryptocurrency working group, the drafting of new digital asset regulatory plans, and the exploration of a national cryptocurrency reserve. At the same time, the SEC rescinded SAB 121, allowing banks to custody digital assets after additional guidance from regulatory agencies. As a result, the price of Bitcoin rose significantly, with a month-on-month increase of 9.5% at the end of January. However, subsequent breakthroughs in the AI field and news related to tariffs shook the market, and by February, the crypto market experienced a historic adjustment, with Bitcoin falling below $100,000, down 17.39% in February and closing at around $85,000, with the monthly decline concentrated in the last week of the month. This wave of plummeting did not have a single main cause; it was more like a fluctuation caused by the chaotic nature of the market itself, representing a chain reaction of risk asset sell-offs under the impact of the new government's tariff policies, as well as the self-purifying force after excessive market leverage.

It is worth noting that Bitcoin has shown certain resilience during this wave of fluctuations, while other alternative coins have been more severely affected by negative events within the market. Ethereum has been dragged down to its annual low due to incidents related to a certain trading platform, and Solana has also experienced significant volatility due to political issues surrounding token issuance. In mid to late February, some institutions viewed this short-term volatility as a long-term allocation opportunity. For example, a listed company spent $1.99 billion purchasing 20,356 Bitcoins at an average price of $97,514 each between February 18 and 23. A gaming company also announced on February 28 that the group further increased its Bitcoin holdings, acquiring approximately 100 Bitcoins for about $7.95 million, with an acquisition cost of approximately $79,495 each.

If we extend the timeline, we will find that since last year, the price trends of gold and Bitcoin have increasingly converged. Throughout 2024, the overall volatility of both has shown a certain degree of similarity. In February of this year, the price of gold also plummeted over $100 within a week after reaching a historical high of $2942 per ounce. Previously, an investment institution analyzed the moderate linear correlation between Bitcoin prices and gold prices in 2023, at that time concluding that Bitcoin was still positioned as a risky investment. However, the situation has changed, and the price fluctuations of the two are closely linked, indicating that Bitcoin's "digital gold" nature is becoming more evident. The fundamental reason for this is that they are both seen as alternatives to fiat currency. With the further evolution of the global economic landscape and geopolitical situation, the prices of both may continue to maintain a certain degree of correlation.

The current crypto market is caught in a kind of news vacuum, with the marginal effect of traditional narratives (such as halving cycles and ETF inflows) diminishing. However, signals released from a recent consensus conference indicate that, despite a lack of explosive narratives in the short term, three major trends are quietly reshaping the market: First, a transformation in the regulatory paradigm, where the pro-crypto majority in the U.S. Congress is pushing for the FIT21 bill, and the SEC is reducing the size of its enforcement division, shifting regulation from suppression to guidance, clearing obstacles for institutional entry. Secondly, the crypto market in 2025 is at a critical turning point from "policy arbitrage" to "value creation," and from "speculation-driven" to "technology-driven." Finally, the integration of AI and crypto may become the most noteworthy new breakthrough. If the AI sector begins to rebound and integrates with the crypto market, new narratives may emerge. As the market completes the clearing of leverage and the collaborative narrative of AI and crypto takes shape, a new upward breakthrough may be on the horizon. Historical experience repeatedly verifies that new dawns often gestate in the darkest moments, where fervor and fear intertwine.

The new government has been in office for a month, and the market has entered a chaotic period, with complexities far exceeding previous times. The cryptocurrency sector has also been affected by this uncertainty, experiencing rare frequent fluctuations. Although the inherent weaknesses of human nature have sown the seeds of risk in the market, the immutable scarcity of Bitcoin has never wavered, endowing it with a resilient vitality that penetrates the cyclical fog. As a famous film once said: "Chaos is not a pit, but a ladder."

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