Tariff policies raise economic concerns, Bitcoin may see a reversal in the second quarter

The chaos and concerns triggered by Trump's tariff policy, combined with the rebound in U.S. inflation expectations, have strengthened the market's expectations that the U.S. economy may face "stagflation" or even "recession." This has had a significant negative impact on high-risk assets.

This expectation has hit the high valuations of the US stock market, which have been elevated for two consecutive years, and has transmitted to the cryptocurrency market through Bitcoin ETFs.

Short-term Bitcoin investors have locked in the largest losses of this cycle through selling, completing the latest pricing of Bitcoin. Long-term holders have shifted from "reducing holdings" back to "increasing holdings," absorbing some of the selling pressure, which has led to a new equilibrium around the price of $82,000. However, the market remains fragile, and the unrealized losses for short-term holders are still high. If there is turmoil in the US stock market or a large-scale sell-off of Bitcoin ETF funds, short-term holders are likely to participate in selling, leading to further price corrections.

The current moderate adjustment in the US stock market is basically complete, but further trends still depend on the specific implementation of the tariff policy on April 2 and whether the employment data for March shows significant deterioration. If both of these factors worsen beyond expectations, the market will still adjust downward.

With the emergence of chaos and declines, the US stock market and Bitcoin have both undergone significant corrections, and market panic has been released to a considerable extent.

We believe that as the negative effects of tariff policies are gradually digested and the Federal Reserve approaches the restart of the interest rate cut cycle, there is a high possibility that Bitcoin will experience a reversal trend in the second quarter.

Macroeconomics: Economic and employment data drive expectations of "stagflation" and even "recession" to strengthen, U.S. stocks break down and decline.

After the "Trump 2.0 trade" fizzled out, U.S. stocks have basically returned to the starting point of November 6, 2024, the day Trump was elected. A new trading judgment framework was initially established at the end of February, and throughout March, the output of this judgment framework was based on the continuously released various economic, employment, and interest rate data.

This judgment framework is a game between the possibility of "economic stagflation" or even "economic recession" triggered by Trump's tariff policy and the Federal Reserve's monetary policy choice of prioritizing employment or prioritizing inflation reduction.

On March 7, the U.S. Bureau of Labor Statistics released the employment data for February: Non-farm employment increased by 151,000, below the market expectation of 170,000, indicating a slowdown in job growth but still maintaining relative strength. The unemployment rate rose from 4.0% in January to 4.1%, suggesting a slight loosening in the labor market. Average hourly wages increased by 0.3% month-over-month and by 4.0% year-over-year, exceeding the inflation rate, indicating an improvement in real wages but potentially putting pressure on inflation.

This "acceptable" employment data partially alleviated concerns that the economy has already begun to decline, leading to a drop and then a rise in US stocks. However, worries still exist, as employment data fell short of expectations and the unemployment rate is also rebounding.

On March 12, the U.S. Department of Labor released the CPI data: The overall Consumer Price Index (CPI) rose by 0.2% month-on-month in February and increased by 2.8% year-on-year, slightly down from 3.0% in January. The core CPI (excluding food and energy) rose by 0.2% month-on-month and increased by 3.1% year-on-year, indicating that inflation has eased somewhat, but core inflation remains above the Federal Reserve's target of 2%.

The PCE data, which the Federal Reserve is more concerned about, will be released on the 28th, showing that the overall personal consumption expenditure price index increased by 0.3% month-on-month in February and by 2.5% year-on-year; the core PCE increased by 0.4% month-on-month and by 2.8% year-on-year, reflecting that the downward path of inflation is hindered and the core indicators are quite sticky.

Although the magnitude is small, both CPI and PCE indicate that price growth has begun to rebound, which means that the Federal Reserve's goal of reducing inflation faces severe challenges.

After the interest rate meeting on the 18th-19th, the Federal Reserve announced that it would maintain the federal funds rate at 4.25-4.50%, marking the second consecutive pause in rate cuts. The statement pointed out that economic activity is steadily expanding, the labor market is solid, but inflation remains slightly high, particularly with increased uncertainty in the economic outlook under Trump's policy. This is the first time the Federal Reserve has clearly stated that tariff policies may impact the economic downturn, but the risk of recession "has increased, but is still not high."

On the 28th, the University of Michigan released the final value of the consumer confidence index for March, which fell from 64.7 in February to 57, below expectations. Consumers expect an annual inflation rate of 4.1% over the next 5 to 10 years, the highest since February 1993, and the expected inflation rate for the coming year is 5%, reaching its highest level since 2022.

On the same day, the Atlanta Federal Reserve's GDPNow model showed that the forecast for the actual GDP growth rate in the United States for the first quarter, as of the 28th, was -2.8%. This figure resonates with the University of Michigan's Consumer Confidence Index, leading to a significant drop in the three major stock indexes, while the VIX index surged by 11.9% in a single day.

As for Trump's tariff policy, as of the end of March, tariffs on Canada, Mexico, China, and on steel and aluminum products have already been implemented. Starting April 2, the United States will impose a 25% tariff on all imported cars, covering vehicle types such as passenger cars and light trucks. A 25% tariff will also be levied on core automotive parts, with an effective date no later than May 3.

The unresolved issue is the implementation of "reciprocal tariffs" on major trade deficit countries, with a specific list to be released on April 2. April 2 is currently viewed by the market as the day of greatest concern regarding the trade war.

Due to uncertainties regarding tariffs and concerns about "economic stagflation" and even "economic recession," funds continued to withdraw from the equity market in March, resulting in declines of 8.21%, 5.75%, and 4.20% for the Nasdaq, S&P 500, and Dow Jones respectively, falling below or nearing the 250-day moving average, achieving a moderate level of technical adjustment.

Safe-haven funds are flowing into U.S. Treasuries, pushing down the 2-year U.S. Treasury yield by 1.15% in a single month. The 10-year U.S. Treasury yield fell by 0.45%, but combined with inflation expectations, the long-term funds' expectations for long-term economic growth have dropped to negative growth levels.

Another safe-haven asset favored by mainstream capital, gold, has received significant attention. This month, London gold officially broke through the 3000 yuan mark, rising 8.51% in a single month to reach 3123.97 USD/ounce.

Consumer confidence is low, inflation expectations are rising, and there are pessimistic views on U.S. economic growth, with concerns that the uncontrolled and volatile tariff war could push the U.S. economy into "stagflation" and "recession." The uncertainty surrounding Trump's tariffs is the biggest variable, which is exacerbating the deterioration of the U.S. economy and consumer confidence, thereby driving the market towards "stagflation" and "recession" trades. With the relatively "dovish" remarks from the Federal Reserve Chair, the market began to speculate on a rate cut intervention by the Fed in June, and as U.S. stocks fell, the number of expected rate cuts increased from two to three. The inflation issue may be temporarily set aside, but it has not disappeared; instead, it is expected to intensify with the tariff war. The effects of the tariff war will only be visible after it is settled.

Crypto Assets: Running in a downtrend channel, extreme market conditions may drop to 73000 dollars

Traders' worries and fears dominated the turmoil in the capital markets in March. Bitcoin remained relatively stable in March due to the sharp decline at the end of February, but the rebound was weak, ultimately recording a monthly decline of 2.09%.

In March, Bitcoin opened at $84,297.74, closed at $82,534.32, reached a high of $95,128.88, and a low of $76,555.00, with a volatility of 22.03%. The trading volume slightly increased compared to the previous month.

In terms of time, after a sharp decline at the end of February, Bitcoin began a technical rebound in the second and third weeks of March, but the rebound strength was weak, with a maximum increase of only 16% from the low point. In the following week, as the U.S. tariff policy became chaotic and inflation data, especially consumer confidence data, declined, Bitcoin fluctuated downward along with the U.S. stock market, ultimately recording a monthly decline.

Technically speaking, the entire month has been operating within the descending channel since February, below the first upward trend line of this cycle. Moreover, after the sharp drop at the beginning of the month, trading enthusiasm has sharply decreased, with trading volume declining week by week. For most of the time, it has been operating below the 200-day line, briefly touching the 365-day line on March 11.

Although the centralized exchanges for Bitcoin showed an outflow throughout the month, there was also a small inflow of funds into the Bitcoin ETF channel. However, against the backdrop of turmoil in the US stock market, Bitcoin, as a high-risk asset, still struggles to attract buying power.

In terms of policy, there have been many positive developments this month. On March 6, President Trump signed an executive order to officially establish a "strategic Bitcoin reserve," incorporating approximately 200,000 Bitcoins previously seized by the federal government into the reserve, and clearly stating that these assets will not be sold in the next four years. On March 7, Trump held a White House crypto summit, inviting numerous industry and capital figures to discuss regulatory policies, reserve policies, and future development directions for the crypto industry. On March 29, the Federal Deposit Insurance Corporation released guidelines clarifying the compliance process for banks participating in cryptocurrency-related activities. On the same day, Trump granted clemency to three co-founders of a certain cryptocurrency exchange.

At the state level, on March 6, Texas proposed to establish a state-level Bitcoin strategic reserve, which has entered the legislative "notice of intent" stage. On March 31, the California legislature officially submitted the "Bitcoin Equity Act," aimed at clarifying the legal rights and usage regulations of Bitcoin within the state.

All of the above indicates that Bitcoin and crypto assets are being practically implemented in the United States. These policies and regulations will take time to take effect, but they are undoubtedly clearing the way for the U.S. to build a "crypto capital" in the future.

However, concerns about "stagflation" and "inflation" dominated the market, and traders who were avoiding risks and killing valuations chose to ignore these long-term benefits, leading to the short-term decline in Bitcoin prices.

Perhaps due to long-term favorable support, Bitcoin is still in a relatively strong position compared to the U.S. stock market, which has already returned to the November 6 level. This month's closing price is $82,378.98, still higher than the $70,553 on November 5.

Considering the lack of liquidity, if tariffs exceed expectations or worse employment and economic data is released, Bitcoin does not rule out the possibility of retracing all gains from the "Trump trade," falling to $70,000 - $73,000. However, this would only occur in the case of a significant deterioration in tariffs or employment data. If U.S. stocks can gradually stabilize after the "liberation day" when tariff-related negativity is fully released on April 2, the previous $76,000 may become the low point of this round of decline.

Capital: Bitcoin spot ETF outflows slow down, stablecoins continue to flow in

Last month, Bitcoin spot ETF sales reached 3.249 billion, setting a record for the largest monthly outflow since its establishment. This month, the overall capital outflow from the ETF channel continued, but the scale significantly decreased to 634 million. The outflow mainly occurred in early March, while after mid-March, there was a peak of continuous inflows for 10 trading days.

Stablecoins continued to flow in at 4.893 billion this month, slightly lower than last month's 5.3 billion.

The inflow and outflow of funds through the ETF channel are completely synchronized with the rise and fall of Bitcoin prices, which can serve as evidence that this round of adjustments is a result of the adjustments in the US stock market.

The funds in the market did not act independently, but reacted by following the market, and this was the case during the decline in late February to early March and the subsequent rebound.

The price of Bitcoin will continue to be linked to the US stock market, especially the Nasdaq, so the US tariff war and the Federal Reserve's interest rate cut decisions will continue to affect the medium to long-term trend. The scale and sustainability of the inflow of funds through the ETF channel have become an observation tool for judging the short to medium-term trend.

Secondary sell-off paused: chips return to long-term holders for cooling, while short-term holders continue to be under pressure

In February