Crypto Market March Report: Breaking Through the Fog of the Tariff War, BTC May Welcome a Reversal Market in Q2

The tariff war initiated by Trump has triggered market turmoil and concerns, coupled with a rebound in U.S. inflation expectations, which has strengthened market predictions that the U.S. economy may fall into "stagflation" or even "recession." This is extremely unfavorable for high-risk assets.

This expectation has impacted the high valuations of the U.S. stock market, which have risen for two consecutive years, and has transmitted to the crypto market through the BTC ETF.

The selling by short-term investors in BTC has resulted in the largest losses in this cycle, completing the latest pricing of BTC. Long-term holders have once again shifted from "reducing holdings" to "increasing holdings," absorbing some of the selling pressure, which has brought the price to a new equilibrium around $82,000. However, the market remains fragile, as short-term investors are still facing significant unrealized losses. If chaos in the US stock market leads to the selling of BTC ETF funds, short-term investors will inevitably participate in the selling, causing the price to further decline.

The moderate adjustment in the US stock market is basically complete, but the further trend still depends on the extent of the explosion point of the tariff war on April 2 and whether the employment data in March shows a significant decline. If both exceed expectations of deterioration, it will still be priced down.

With the decline triggered by chaos, the US stock market and BTC both experienced significant corrections, and the selling pressure and panic were released to a considerable extent.

We believe that as the tariff war gradually comes to an end and the Federal Reserve resumes interest rate cuts, it is highly probable that BTC will see a reversal in the second quarter.

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

As the "Trump 2.0 trade" cools down, the US stock market has basically returned to the starting point of Trump's victory day on November 6, 2024. A new trading judgment framework was initially established at the end of February, and throughout March, various economic, employment, and interest rate data continuously fed into this framework, producing results.

This judgment framework is the game between the possibility of "economic stagflation" or even "economic recession" triggered by Trump's tariff policy, and the Federal Reserve's choice of whether to prioritize employment or prioritize reducing inflation.

On March 7, the U.S. Bureau of Labor Statistics released the employment data for February: non-farm employment increased by 151,000, lower than the expected 170,000, indicating a slowdown in job growth, but still relatively robust. 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-on-month and by 4.0% year-on-year, exceeding the inflation rate, indicating an improvement in real wages, but it may pose pressure on inflation.

This somewhat "acceptable" employment data has partially alleviated concerns that the economy has already begun to decline, with US stocks initially falling and then rising. However, worries still persist, as the employment data fell short of expectations and the unemployment rate is also rebounding.

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

The PCE data that the Federal Reserve is more concerned about was released on the 28th, showing: a month-on-month increase of 0.3% in overall PCE for February and a year-on-year increase of 2.5%; a month-on-month increase of 0.4% in core PCE and a year-on-year increase of 2.8%, reflecting that the downward path of inflation is hindered, and the core indicators are relatively 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 commitment to its inflation reduction target faces severe challenges.

On the 18th and 19th, after a two-day meeting regarding interest rates, 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 noted that economic activity is steadily expanding, the labor market remains solid, but inflation is still slightly high, especially with the increased uncertainty in the economic outlook due to Trump’s policies. This is the first time the Federal Reserve has explicitly stated that tariff policies may impact economic downturns, but the risk of recession "has increased somewhat, but is still not high."

Federal Reserve Chairman Powell stated that inflation may be delayed in returning to the 2% target due to tariffs and other policies, and hinted that he would cut interest rates if the job market deteriorates. As a preemptive measure against tariff impacts, the Federal Reserve has reduced the cap on U.S. Treasury bond holdings from $25 billion/month to $5 billion/month.

The Federal Reserve's relatively "dovish" stance boosted the market, driving the three major stock indices to rebound significantly. By the end of the month, the market raised its expectations for interest rate cuts in 2025 to three times for the first time. Goldman Sachs also expects three rate cuts this year.

On the 28th, the University of Michigan Consumer Confidence Index fell from 64.7 in February to 57, the lowest since February 1993. Consumers expect an annual inflation rate of 4.1% over the next 5 to 10 years, up from an initial value of 3.9%. The expectation for the inflation rate over the next year is 5%, the highest level since 2022.

On the same day, the Atlanta Fed's GDPNow model indicated that the forecast for the actual GDP growth rate in the United States for the first quarter is -2.8%. This figure resonates with the University of Michigan's Consumer Confidence Index, leading to a significant drop in the three major stock indices, with the VIX index soaring by 11.9% in a single day.

Regarding Trump's tariff policies, there have been multiple back-and-forths this month. As of the end of March, the tariffs on Canada, Mexico, China, and on steel and aluminum products have been implemented.

Starting from 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 imposed on core automotive parts, effective 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 seen by the market as the day of greatest concern regarding the tariff war.

Due to uncertainties regarding tariffs and concerns over "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% in the Nasdaq, S&P 500, and Dow Jones respectively, falling below or near the 250-day moving average, achieving a moderate technical adjustment.

Risk-averse funds are flowing into U.S. Treasury bonds, pushing the 2-year U.S. Treasury yield down 1.15% in a single month. The 10-year Treasury yield fell 0.45%, but combined with inflation expectations, 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 by 8.51% in a single month, reaching 3123.97 USD/ounce.

Consumer confidence is low, inflation expectations are rising, and the market is pessimistic about U.S. economic growth, even worrying that the uncontrolled and volatile tariff war will push the U.S. economy into "stagflation" and "recession." The uncertainty of Trump's tariffs is the biggest variable, driving the deterioration of the U.S. economy and consumer confidence, further prompting the market to engage in "stagflation" and "recession" trading. With Powell's relatively "dovish" remarks, the market began to speculate on a Fed rate cut intervention in June, and as U.S. stocks fell, the number of expected cuts increased from two to three. The issue of inflation may be temporarily set aside, but it has not disappeared; on the contrary, it is likely to intensify with the tariff war. The effects of the tariff war will only be seen after the situation stabilizes.

Crypto Assets: Running in a downward channel, extreme market conditions may drop to 73000 USD

Traders' worries and fears dominated the turmoil in the capital markets in March. BTC 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 February, BTC opened at $84,297.74, closed at $82,534.32, with a high of $95,128.88 and a low of $76,555.00, a volatility of 22.03%, and the trading volume slightly increased compared to the previous month.

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

Technically speaking, the entire month has been operating within the downward channel since February, below the first rising trend line of this cycle. Additionally, since the sharp drop at the beginning of the month, trading enthusiasm has sharply decreased, and trading volume has declined week by week. Most of the time, it has been operating below the 200-day line, with a brief touch on the 365-day line on March 11.

Although centralized exchanges showed a net outflow of BTC throughout the month, there was still a small inflow of funds into the BTC ETF channel. However, against the backdrop of turbulence in the U.S. stock market, BTC, as a high-risk asset, still struggles to attract buying power.

On the policy level, there have been many favorable developments this month.

On March 6, U.S. President Trump signed an executive order to officially establish the "Strategic Bitcoin Reserve" (Strategic Bitcoin Reserve, SBR), incorporating approximately 200,000 BTC previously seized by the federal government into the reserve, and clearly stating that these assets will not be sold in the next four years. At the same time, the order also proposed the establishment of a reserve consisting of digital assets other than Bitcoin, aiming to enhance the U.S. position in the global financial system through asset diversification. This marks the first time Bitcoin has been managed as a permanent national asset by the U.S. government, solidifying its status as "digital gold." Although the executive order is not legislation, it lays the groundwork for subsequent policies.

On March 7, the day after signing the executive order, Trump held a White House crypto summit, inviting many industry and capital figures to discuss regulation, reserve policies, and future development directions of the encryption industry. This summit further released the signal that the U.S. government supports crypto innovation.

On March 29, the Federal Deposit Insurance Corporation ( FDIC ) released guidelines that clarify the compliance process for banks participating in cryptocurrency-related activities. This provides a clear path for traditional financial institutions to integrate into the crypto market and helps banks engage in crypto asset services.

On the same day, Trump granted pardons to three co-founders of a certain trading platform.

At the state level, on March 6, Texas proposed the establishment of a state-level Bitcoin strategic reserve, which has entered the legislative "intent notice" stage, typically indicating a higher likelihood of the bill's passage. On March 31, the California legislature officially submitted the "Bitcoin Rights Act," aimed at clarifying the legal rights and usage regulations of Bitcoin within the state.

The above indicates that BTC and encryption assets are being practically implemented in the United States. These policies and regulations will take time to take effect, but they are undoubtedly clearing obstacles for the United States to build a "crypto capital" in the future.

However, concerns about "stagflation" and "inflation" have dominated the market, and traders who are avoiding risk and killing valuations have chosen to ignore these long-term benefits, leading to a short-term decline in BTC prices.

Perhaps due to long-term favorable support, compared to the US stock market that has already returned to the level of November 6, BTC is currently still in a strong position. This month's closing price is $82378.98, still higher than the $70553 on November 5.

Considering the lack of liquidity, if tariffs exceed expectations or worse employment and economic data is released, BTC does not rule out the possibility of giving back all the gains from the "Trump trade," falling to the range of $70,000 to $73,000. However, this would only occur in the event of a significant deterioration in tariffs or employment data. If U.S. stocks can stabilize gradually after the "Liberation Day" when tariff negatives are fully released on April 2, the previous $76,000 could potentially become the low point of this round of sell-off.

Fund: BTC Spot ETF outflow slows down, stablecoins continue to flow in

In the February report, we mentioned that the selling pressure in this round of adjustment came from the BTC Spot ETF. Last month, its outflow reached 3.249 billion, setting a record for the largest monthly outflow since its establishment. This