Early 2025 Market Turmoil: Trump Policies, AI Impacts, and Crypto Assets Trends

In early 2025, with the new government having been in office for a month, the policy environment and economic situation in the United States underwent significant changes. On one hand, the benefits brought by the new policies filled the market with expectations; on the other hand, major breakthroughs in the AI field triggered severe fluctuations in technology stocks, subsequently affecting the entire financial market. Particularly in February, a blend of key economic data releases, adjustments to regulatory frameworks, and accelerated technological innovations led the Crypto Assets market through a baptism and reconstruction.

In February 2025, the macroeconomic situation in the United States presented a complex landscape. Although the revised GDP growth rate for the fourth quarter remained at 2.3%, multiple indicators showed that economic growth had entered a slow lane. The labor market clearly cooled, with non-farm employment increasing by 187,000 in February, below expectations; hourly wage growth slowed to 0.2%, hitting a new low in nearly 16 months. The consumer confidence index declined for three consecutive months to 98.3, reflecting growing concerns among the public about declining purchasing power.

There have been some positive signals regarding inflation. The core CPI in January increased by 2.5% year-on-year, a slight decrease of 0.1 percentage points from the previous month. The year-on-year core PCE price index in January recorded 2.6%, the lowest level in nearly 8 months. However, the tariff policy implemented by the new government may become the biggest variable affecting inflation trends. The measure of imposing a 10% tariff on imported goods from Mexico and Canada is expected to raise the costs of important categories such as automobiles and agricultural products. A model from a certain Federal Reserve branch predicts that this policy may cause the US CPI to rise an additional 0.3-0.5 percentage points in the second quarter.

In terms of interest rate policy, the market generally expects the Federal Reserve to keep interest rates unchanged in the short term. A certain data platform shows that the probability of maintaining the interest rate unchanged in March is as high as 95.5%. However, considering the uncertainty of inflation and the potential pressure from tariff policies, the Fed's decision on interest rate cuts still has variables.

The core contradiction facing the U.S. economy in 2025 is the tug-of-war between slowing growth and resilient inflation. The Federal Reserve is trying to balance risks through cautious monetary policy, while the new government's series of tariff increases not only complicates this issue but also continues to impact the pricing logic of global supply chains, exacerbating global economic instability. Historical experience shows that trade protectionism often struggles to fundamentally resolve structural economic problems. In the next six months, finding certainty in the policy game will become the central issue of concern for the global market.

In early 2025, the most noteworthy event in the field of AI was the emergence of DeepSeek. DeepSeek significantly reduced the computational power dependency of AI models through algorithm optimization, pushing the industry from a "computational power race" to "algorithm efficiency" transformation, reshaping the market's demand logic for AI infrastructure. For example, DeepSeek-V3 only required 2048 H800 GPUs for training, while traditional models needed tens of thousands of similar chips, directly undermining the "moat" narrative supported by high capital expenditures of tech giants.

The impact of DeepSeek, combined with global supply chain concerns triggered by tariff policies, has led to technology stocks being the most affected sector due to their high level of globalization. Throughout February, the Nasdaq index was hit hardest due to its high weighting in technology stocks, plunging 4% and erasing the gains accumulated earlier in the year, marking the worst monthly performance in nearly 10 months. The Dow Jones Industrial Average, due to its larger proportion of traditional industries, was relatively resilient, with a cumulative decline of 1.58%, while the S&P 500 index fell 1.42%, placing it in between the two.

The market's reassessment of the competitive landscape of the AI industry in the US has already become apparent, directly reflected in the performance of major tech stocks in the US. Although the latest financial reports have not shown anything particularly outstanding, the prevailing market sentiment has led to a general decline in stock prices. An analyst from a certain investment group pointed out: "Looking around, fear has indeed become a collective emotion."

In this environment of low market sentiment, Crypto Assets are also inevitably affected. Data shows that the six-month rolling correlation between Bitcoin and the Nasdaq index has recently risen to 0.5, reaching a new high since 2023, which means that the volatility of US stocks has intensified, and the impact on the crypto market has become increasingly evident. Once the stock market experiences fluctuations or panic due to unexpected variables, investors' risk appetite decreases, leading to a withdrawal of funds from risk assets, which easily results in downward price pressure on the crypto market. This chain reaction highlights the market's "over-defense" mentality towards the impact of new technologies and policy uncertainties.

After the new government took office, the Crypto Assets sector welcomed a series of favorable policies. For example, the establishment of a Crypto Assets working group, the drafting of new regulatory schemes for digital assets, and the exploration of a national Crypto Assets reserve. At the same time, a regulatory agency revoked an accounting announcement, allowing banks to custody digital assets after the issuance of additional guidance from the regulatory authority. As a result, the price of Bitcoin increased by 9.5% month-on-month at the end of January. However, subsequent news of technological breakthroughs and tariff-related headlines impacted the market. By February, the Crypto Assets market experienced a historic adjustment, with Bitcoin falling below $100,000, down 17.39% in February, closing at around $85,000, with the month's decline concentrated in the last week. This sharp drop did not have a single independent 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 tariff policies, as well as the self-purification force after market over-leveraging.

It is worth noting that Bitcoin has shown a certain level of resilience during this wave of fluctuations, while other crypto assets have been more severely impacted by negative events occurring within the market. Ethereum has reached a yearly low due to issues related to a trading platform, and a certain public chain has experienced significant volatility due to political token issuance controversies. In mid to late February, some institutions viewed this short-term volatility as a long-term allocation window. For example, a large listed company invested $1.99 billion to purchase 20,356 Bitcoins at an average price of $97,514 per coin between February 18 and 23. A gaming company also announced on February 28 that it would further increase its Bitcoin holdings, acquiring approximately 100 Bitcoins for about $7.95 million, with a purchase cost of about $79,495 each.

In the long term, the price trends of gold and Bitcoin are increasingly converging. Throughout 2024, the overall fluctuations of both have shown a certain degree of alignment. In February of this year, the price of gold also plummeted over $100 within a week after reaching a historic high of $2942 per ounce. The "digital gold" attribute of Bitcoin is becoming increasingly evident, fundamentally because both are viewed as alternatives to fiat currency. As the global economic situation and geopolitical landscape continue to evolve, the prices of the two may maintain a certain level of correlation.

The current crypto market is caught in a kind of news vacuum, and the marginal effects of traditional narratives (such as halving cycles and ETF inflows) are diminishing. From the signals released at a recently concluded consensus conference, although there is a lack of explosive narratives in the short term, three major trends are quietly reshaping the market: First, the transformation of the regulatory paradigm, with a pro-crypto majority in the U.S. Congress pushing related bills, and a regulatory agency reducing the size of its enforcement department, 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 starts to rebound and integrates with the crypto market, a new narrative may also emerge. As the market completes the clearing of leverage and the collaborative narrative of AI and crypto takes shape, a new upward breakthrough may already be on the horizon. Historical experience repeatedly verifies that a new dawn often emerges in the darkest moments, intertwined with fervor and fear.

A month has passed since the new government took office, and the market has entered a chaotic period, with complexity far exceeding the past. The field of Crypto Assets 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, Bitcoin's immutable scarcity attribute has never wavered, granting it a strong vitality to penetrate the cyclical fog. As a famous novel says: "Chaos is not a pit, but a ladder."