Trump in power at the beginning of 2025 and market turmoil

In January and February 2025, the new government had just been in office for a month, and the policy dividends were beginning to show, but the market experienced severe fluctuations. On one hand, there was the anticipation brought by the new government, and on the other hand, there were the disruptions in the financial market caused by breakthroughs in AI technology. Especially in February, with the release of key economic data, adjustments to regulatory policies, and accelerated technological innovations, the cryptocurrency market also underwent a round of baptism and reconstruction.

In February 2025, several indicators of the U.S. macroeconomy showed a decline. At the same time, the trade protection policies implemented by the new government also had a profound impact on the global economy, triggering widespread market turbulence.

Despite the revised GDP growth rate of 2.3% for the fourth quarter in the United States, multiple indicators show that economic growth has slowed down. The labor market has noticeably cooled: non-farm employment increased by 187,000 in February, below expectations; hourly wage growth slowed to 0.2%, the lowest in nearly 16 months. In addition, the University of Michigan's Consumer Sentiment Index has declined for three consecutive months to 98.3, reflecting increasing public concern over declining purchasing power.

There has been a slight improvement in inflation. The core CPI in January increased by 2.5% year-on-year, down 0.1 percentage points from the previous month. The year-on-year core PCE price index in January was 2.6%, the lowest since June 2024, in line with market expectations.

However, the new government's tariff policy may become the biggest variable for inflation. The measure to impose a 10% tariff on imported goods from Mexico and Canada is expected to raise costs for key categories such as automobiles and agricultural products. Models estimate that this policy could lead to an additional increase of 0.3-0.5 percentage points in the U.S. CPI in the second quarter.

In terms of interest rates, the market generally expects the Federal Reserve to maintain the current rate in the short term. However, considering the uncertainty of inflation and the potential impact of tariff policies, the Fed's decision to cut rates remains uncertain.

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 is attempting to balance risks through prudent monetary policy, while the new government's tariff policies have exacerbated the complexity of the issue and continue to impact the pricing logic of global supply chains, amplifying the uncertainty of the global economy. Historical experience shows that trade protectionism is difficult to fundamentally resolve structural economic issues. Finding certainty in policy games will be the core proposition of the global market in the next six months.

At the beginning of 2025, the hottest topic in the AI field is undoubtedly the emergence of DeepSeek, which has had the greatest impact on the US stock market by breaking the existing expectations for AI development.

DeepSeek has pierced through some of the bubbles in the AI field, with its open-source model significantly reducing computational power requirements 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, DeepSeek-V3 completed training with only 2048 H800 GPUs, while traditional models require tens of thousands of similar chips, directly shaking the "moat" narrative built by tech giants' high capital expenditures.

The impact of DeepSeek, combined with global supply chain concerns triggered by the new government's tariff policies, has led to technology stocks, the most globalized sector, being the hardest hit. Throughout February, the Nasdaq was the most affected due to its high weight in technology stocks, plummeting by 4%, erasing the gains accumulated earlier in the year, marking its worst monthly performance since April 2024. The Dow Jones, due to its large representation of traditional industries, was relatively resilient, with a cumulative decline of 1.58%, while the S&P 500 fell in between the two, down by 1.42%.

The market's reassessment of the competitive landscape of the U.S. AI industry has already become apparent, directly reflected in the performance of large tech companies in the U.S. stock market. According to the earnings reports, these companies' latest performances have not been particularly impressive; even the best-performing chip company did not significantly exceed expectations, leading investors to take profits. Overall, the market currently lacks a clear trading direction, and the price performance of large tech stocks shows characteristics of "month-end policy and sentiment-driven plummets." As an analyst from a certain investment group said: "Looking around, fear has already become a collective emotion."

In this environment of low market sentiment, cryptocurrency assets are also bound to be affected. Data shows that the six-month rolling correlation index of Bitcoin with the Nasdaq has recently risen to 0.5, a new high since 2023, indicating increased volatility in the US stock market, with its impact on the crypto market becoming more apparent. Once the stock market experiences fluctuations or even panic due to unexpected variables like DeepSeek, investors' risk appetite decreases, and they withdraw funds from risk assets, which can easily lead to downward price pressure in the crypto market. This chain reaction highlights the market's "over-defensive" mentality towards technological breakthroughs and policy uncertainties.

After the new government took office, cryptocurrency policy shifted from campaign promises to substantive actions. On January 18, the new president announced the sale of an official Meme token, which at one point had a market value exceeding $14.5 billion, followed by a 60% crash. This event not only made some people wealthy but also caused significant asset depreciation for others. A deeper insight is that cryptocurrencies are radiating from the financial sector to the political arena. If the approval of a Bitcoin spot ETF by a regulatory agency is a milestone for cryptocurrencies entering traditional finance, then government-issued tokens serve as a witness to their entry into politics. Through operations like "token swaps," political influence is directly converted into market liquidity, demonstrating the potential of crypto assets as a new political tool. Whether it is the advancement of Bitcoin reserve bills in multiple states in the U.S. or the accelerated compliance process of the EU's cryptocurrency asset regulatory framework, the ongoing global regulatory game is underpinned by the vital clue that "code is power."

In addition, the cryptocurrency community continues to pay attention to the new government's policy implementation. After taking office, the crypto sector 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. Meanwhile, a regulatory agency revoked an accounting announcement, allowing banks to custody digital assets after additional guidance is issued by the regulatory body. As a result, Bitcoin's price rose positively, with a month-on-month increase of 9.5% by the end of January. However, subsequent news of new technological breakthroughs and tariff-related updates shocked the market. By February, the crypto market experienced a historic adjustment, with Bitcoin falling below $100,000, declining 17.39% in February and closing at around $85,000, with the month's drop concentrated in the last week. This wave of plummet did not have a single main cause; rather, it seemed to be the result of the chaotic market's own fluctuations, representing both a chain reaction of risk asset sell-offs under the new government's tariff policy shock and the self-purifying force after market over-leverage.

It is worth noting that Bitcoin has shown a certain degree of resilience during this wave of fluctuations. Other alternative cryptocurrencies have been more affected by negative events occurring within the market, with many experiencing deeper declines. One cryptocurrency has hit a yearly low due to issues related to a certain exchange, while another cryptocurrency has undergone significant fluctuations due to political controversies surrounding coin issuance. In mid to late February, some institutions viewed this short-term volatility as a long-term allocation window. For example, a certain listed company spent $1.99 billion to purchase 20,356 Bitcoins at an average price of $97,514 each between February 18 and 23. A certain gaming company also announced on February 28 that the group further increased its Bitcoin holdings, acquiring about 100 Bitcoins for approximately $7.95 million, with a purchase cost of around $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 the two has 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 historical high of $2942 per ounce. Previously, an analysis institution had analyzed the moderate linear correlation between Bitcoin prices and gold prices in 2023, at that time believing that Bitcoin was still positioned as a risk investment. Now the situation has changed, and the price fluctuations of the two are closely linked, indicating that Bitcoin's "digital gold" nature is becoming more apparent, fundamentally because they are both viewed as substitutes for fiat currency. As the global economic situation and geopolitical landscape continue to evolve, the prices of the two may maintain a certain degree of correlation.

The current cryptocurrency market is in a kind of information vacuum, with the marginal effects of traditional narratives (such as halving cycles and ETF inflows) diminishing. However, signals released from a recent cryptocurrency summit indicate that, despite a lack of explosive narratives in the short term, three major trends are quietly reshaping the market: first is the transformation of the regulatory paradigm, with the pro-crypto majority in the U.S. Congress promoting new legislation, and a certain regulatory agency reducing the scale of its enforcement department, shifting regulation from suppression to guidance, thus clearing obstacles for institutional entry. Secondly, the cryptocurrency 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 cryptocurrency may become the most noteworthy new breakthrough. If the AI sector begins to rebound and combines with the cryptocurrency market, new narratives may also emerge. As the market completes its deleveraging and the narrative of AI and cryptocurrency takes shape, a new upward breakthrough may be imminent. Historical experience repeatedly verifies that new dawns often gestate in the darkest moments, intertwined with fervor and fear.

A month after the new government took office, the market has entered a chaotic period, with complexity far exceeding the past. The crypto market has also been affected by this uncertainty, experiencing a rare frequency of 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 resilient vitality to penetrate the cyclical fog. As a famous film once said: "Chaos is not a pit, but a ladder."