Crypto Market March Report: Breaking Through the Fog of Trade Wars, BTC is Expected to See a Reversal in the Second Quarter

The turmoil and concerns caused by Trump's tariff policies, coupled with the rebound in U.S. inflation expectations, have strengthened the market's expectations that the U.S. economy may fall into "stagflation" or even "recession." This has had a significant negative impact on high-risk assets.

This expectation has impacted the high valuations of the US stock market that have been sustained for two consecutive years, and has transmitted to the crypto market through the BTC ETF.

The sell-off by short-term BTC investors has locked in the maximum loss amount within this cycle, initially 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 and establishing a new balance around the price of 82000 dollars. However, the market remains fragile, and the floating losses of short-term holders are still at a high level. If chaos in the U.S. stock market leads to the sell-off of BTC ETF funds, short-term holders will inevitably participate in the sell-off, and the price will be further adjusted downwards.

The moderate adjustment in the US stock market is basically complete, but the further trend still depends on the extent of the impact of the tariff war trigger point on April 2, as well as whether there is a significant decline in March employment data. If both of these factors worsen beyond expectations, the market will continue to price down.

With the decline caused by the chaos, both the US stock market and BTC have experienced significant adjustments, and the panic selling and fear sentiment have been released to a considerable extent.

We believe that as the negative effects of the tariff war are gradually digested, and the Federal Reserve's restart of interest rate cuts is approaching, the possibility of BTC experiencing a reversal in the second quarter is quite high.

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

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, it focused on the outputs generated from various economic, employment, and interest rate data released.

This judgment framework is a game between the likelihood of "economic stagflation" or even "economic recession" triggered by Trump's tariff policy and the choice of whether the Federal Reserve's monetary policy prioritizes employment or prioritizes 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 in February, lower than the market expectation of 170,000, indicating a slowdown in job growth but still maintaining relative stability. 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 exert pressure on inflation.

The "acceptable" employment data partly alleviated concerns that the economy has already begun to decline, with U.S. stocks initially falling and then rising. However, worries still remain, 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 the CPI data: the overall Consumer Price Index for February increased by 0.2% month-on-month and 2.8% year-on-year, slightly down from 3.0% in January. The core CPI (excluding food and energy) increased by 0.2% month-on-month and 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 that the Federal Reserve is more concerned about was released on the 28th, showing: the overall personal consumption expenditure price index in February increased by 0.3% month-on-month and 2.5% year-on-year; the core PCE increased by 0.4% month-on-month and 2.8% year-on-year, reflecting that the downward path of inflation is blocked, and the core indicators are quite sticky.

PCE data shows that the overall personal consumption expenditures price index increased by 0.3% month-on-month in February and rose by 2.5% year-on-year, higher than January's 2.5%; core PCE increased by 0.4% month-on-month and rose by 2.79% year-on-year, higher than January's 2.66%.

Although the magnitude is small, both the 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 interest rate meeting, 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 is solid, but inflation remains slightly elevated, particularly with increased uncertainty in the economic outlook due to Trump's policies. This is the first time the Federal Reserve has clearly indicated that tariff policies may affect the economic downturn, but the risk of recession "has increased, but is still not high."

Possibly out of concern for the tumultuous US stock market, the Federal Reserve Chairman stated that inflation may be delayed in returning to the 2% target due to policies such as tariffs, and hinted that they would lower interest rates if the job market worsens. As a preemptive measure against the impact of tariffs, the Federal Reserve has slowed the reduction cap on US Treasury holdings from $25 billion/month to $5 billion/month.

The Federal Reserve's relatively "dovish" stance boosted the market, leading to a significant rebound in the three major stock indices. By the end of the month, the market raised its expectation for interest rate cuts in 2025 to three times for the first time. A well-known investment bank also expects three rate cuts this year.

On the 28th, Friday, the University of Michigan released the final value of the consumer confidence index for March, which fell from 64.7 in February to 57, a decline from the initial value of 57.9, and lower than the median estimate of economists surveyed. Consumers expect the annual inflation rate over the next 5 to 10 years to be 4.1%, the highest since February 1993, up from the initial value of 3.9%. The expected inflation rate for the next year is 5%, the highest level since 2022.

The University of Michigan Consumer Confidence Index is a subjective data point, but it fully reflects the drop in confidence among end consumers. On the same day, a GDP forecasting model from a certain Federal Reserve Bank showed that as of the 28th, the predicted growth rate of the actual GDP for the United States in the first quarter was -2.8%. This figure resonates with the University of Michigan Consumer Confidence Index, and like in February, the three major stock indices responded with significant declines, with the VIX index surging 11.9% in a single day.

In terms of Trump's tariff policy, there have been multiple back and forths this month. 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 imposed on core automotive parts (such as engines, transmissions, and electrical systems), with an effective date no later than May 3.

What remains undecided is the implementation of "reciprocal tariffs" on major trade deficit countries, with the specific list to be released on April 2. April 2 is currently seen by the market as the most critical day regarding the tariff war.

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

Hedge funds are pouring into U.S. Treasury bonds, driving the 2-year Treasury yield down by 1.15% in a single month. The 10-year Treasury yield fell by 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 funds, gold has received significant attention, with London gold officially breaking through the 3000 yuan mark this month, surging 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 unpredictable tariff war could push the U.S. economy into "stagflation" and "recession." The uncertainty surrounding Trump's tariffs is the biggest variable, which is driving the deterioration of the U.S. economy and consumer confidence, subsequently pushing the market towards "stagflation" and "recession" trades. With the Federal Reserve's relatively "dovish" remarks, the market is beginning to speculate on a rate cut intervention in June, and as U.S. stocks decline, the number of expected rate cuts has increased from two to three. The issue of inflation may be temporarily set aside, but it has not disappeared; rather, it will intensify with the tariff war. The impact of the tariff war will only become apparent after it is settled.

Crypto Assets: Operating in a Descending Channel, Extreme Market Conditions May Drop to 73000 USD

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

In March, BTC opened at 84297.74 USD, closed at 82534.32 USD, with a high of 95128.88 and a low of 76555.00, a volatility of 22.03%, and the trading volume slightly increased compared to the previous month.

In terms of time, after a significant drop at the end of February, BTC began 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, as the U.S. tariff policy became increasingly chaotic and inflation data, especially consumer confidence data, declined, BTC fluctuated downward alongside the U.S. stock market, ultimately recording a monthly decline.

From a technical perspective, 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 decline at the beginning of the month, trading enthusiasm has dropped sharply, with trading volume decreasing week by week. For most of the time, it has been running below the 200-day line, briefly touching the 365-day line on March 11.

Although the centralized exchange BTC has shown an outflow throughout the month, there has been a small inflow of funds into the BTC ETF channel. However, against the backdrop of the volatile U.S. stock market, BTC, as a high-risk asset, still struggles to attract buying power.

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

On March 6, the President of the United States signed an executive order to officially establish a "Strategic Bitcoin Reserve," 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, aimed at enhancing the United States' position in the global financial system through asset diversification. This marks the first time Bitcoin has been managed by the U.S. government as a permanent national asset, signifying the establishment of its "digital gold" status. Although the executive order is not legislation, it lays the foundation for subsequent policies.

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

On March 29, the Federal Deposit Insurance Corporation (FDIC) of the United States released guidelines that clarify the compliance processes for banks participating in activities related to encryption currency. This provides a clear path for traditional financial institutions to integrate into the crypto market and facilitates banks' involvement in encryption asset services.

On the same day, the three co-founders of a certain encryption currency exchange were granted clemency.

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

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

However, the concerns about "stagflation" and "inflation" have dominated the market, with risk-averse traders and those looking to kill valuations choosing to ignore these long-term benefits, which has led to the short-term decline in BTC prices.

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

Considering the lack of liquidity, if tariffs exceed expectations or if worse employment and economic data are released, BTC does not rule out the possibility of giving back all the gains from the "Trump trade," falling to $70,000-$73,000. However, this would only happen in the case of a significant deterioration in tariffs or employment data beyond expectations. If on April 2nd, the US stock market can sufficiently release the negative impact of tariffs after "Liberation Day," it will be further analyzed.