"Turmoil and Opportunities" in the Crypto Market at the Beginning of 2025

In January and February 2025, the new government policy shift intertwined with changes in the global economic situation, bringing a series of challenges and opportunities to the crypto market. On one hand, the policy dividends at the beginning of the new government's term injected vitality into the market; on the other hand, the breakthrough development of AI technology caused fluctuations in the US stock market, indirectly affecting the performance of crypto assets.

In February, signs of weakness appeared in U.S. economic indicators, with multiple data points showing a slowdown in economic growth. Despite the GDP maintaining a growth rate of 2.3% in the fourth quarter, the labor market showed clear signs of cooling, with non-farm employment in February increasing less than expected, and wage growth hitting a recent low. The consumer confidence index continued to decline, reflecting growing public concerns about the economic outlook.

In terms of inflation, the core CPI in January increased by 2.5% year-on-year, slightly down from the previous month. The core PCE price index also fell to 2.6%, marking a recent low. However, the new government's policy of imposing a 10% tariff on Mexico and Canada may push inflation levels higher in the future.

In terms of interest rate policy, the market generally expects the Federal Reserve to maintain the current interest rates in the near future. However, considering the uncertainty of inflation and the potential pressure from the new tariff policies, the decision on interest rate cuts by the Federal Reserve still remains uncertain.

The core challenge facing the US economy in 2025 is how to seek a balance between slowing growth and inflationary pressures. The new government's protectionist trade tendencies have exacerbated the complexity of this issue and have introduced new uncertainties to the global supply chain.

The significant breakthroughs in the AI field have had a profound impact on the market landscape. Emerging AI companies have drastically reduced their reliance on computing power through algorithm optimization, challenging the market position of traditional tech giants. This development has triggered a substantial adjustment in tech stocks, with the Nasdaq index falling 4% in February, marking its worst monthly performance in nearly a year.

The crypto asset market has also not been spared from this wave of adjustment. The correlation between Bitcoin and the Nasdaq has risen to a nearly two-year high, indicating that the connection between the crypto market and traditional financial markets is becoming increasingly tight. The low market sentiment has led investors to withdraw from risk assets, putting downward pressure on cryptocurrency prices.

After the new government took office, the encryption sector welcomed a series of favorable policies. These include the establishment of a dedicated task force, the formulation of new regulatory plans, and the exploration of national encryption currency reserves. These initiatives propelled Bitcoin to record a 9.5% increase at the end of January. However, the market experienced a sharp adjustment in February, with the price of Bitcoin falling below the $100,000 mark, resulting in a monthly decline of 17.39%.

It is worth noting that Bitcoin has shown strong resilience during this round of adjustment. Some institutional investors view this volatility as an opportunity for long-term allocation and significantly increased their holdings of Bitcoin in mid to late February.

In the long term, the price trend of Bitcoin shows an increasing correlation with gold, highlighting that Bitcoin's properties as "digital gold" are gaining recognition in the market. This trend reflects the rising demand from investors for alternatives to traditional fiat currency.

The current crypto market is at a critical turning point. The regulatory attitude has shifted from repression to guidance, creating favorable conditions for institutional entry. The market focus is also shifting from pure speculation to substantial value creation. The integration of AI and encryption technology may become the next important breakthrough, bringing new growth momentum to the market.

Despite increased market volatility in the short term, the fundamentals of the crypto market remain robust in the long run. The scarcity and decentralized characteristics of Bitcoin showcase its unique value amid economic uncertainty. As history has repeatedly demonstrated, the dawn of the market often emerges during times of turmoil and opportunity.