Long-term inflation expectations in the United States soar, and the tariff war continues to exacerbate market volatility
Source: Talking About Li and Outside
According to a research report from The Kobeissi Letter, the long-term inflation expectations in the United States have surged to 4.1%, the highest level since 1993. The main reason for this issue is attributed to the tariff policies implemented since Trump took office, which have led to a trade deficit of over $300 billion in just over two months, severely impacting consumer confidence. In addition to long-term inflation expectations, the one-year inflation expectation has also skyrocketed from 2.6% to 5.0%, effectively doubling in less than three months, which is bound to create a negative sentiment in the investment market. As shown in the figure below.
In this macro environment, the decline in U.S. stocks is not difficult to understand, and consequently, the drop in the cryptocurrency market is likely to be even greater, while gold continues to rise and has broken historical highs. It seems that smart capital is beginning to make choices through actual actions; in just over the past two months, the inflow into gold ETFs has reached $12 billion. As shown in the figure below. Since the beginning of this year, the S&P 500 has fallen nearly 5%, while gold prices have risen nearly 17%. Does this hint at an atmosphere of economic slowdown?
Let’s return to the cryptocurrency market.
Bitcoin, which has been touted as digital gold for the past two years, seems to have not demonstrated the same attributes as gold; since the beginning of this year, Bitcoin's price has dropped by 30%. As a result, many people are now bearish on the cryptocurrency market, believing that there is little hope left for this market.
However, looking at Bitcoin's current situation, it seems to be better than at any point in history, as it has transformed from a so-called tulip bubble into a national strategic reserve asset of the United States. Moreover, more and more large institutions are beginning to adopt Bitcoin, meaning that Bitcoin's image is gradually undergoing some qualitative changes.
In the short to medium term, Bitcoin still cannot become true gold (in terms of digital gold attributes) and cannot serve as a mature hedging tool for large funds compared to gold. Its price will still be subject to significant fluctuations caused by speculative factors. Currently, Bitcoin appears more like a tech stock. But in the long run, we believe Bitcoin will eventually become a global asset and exist as an effective financial tool on various balance sheets; it seems to be just a matter of time.
However, regarding this cycle, although a theoretical new bull market seems to have started in 2023 (2023-2025), if we continue to look through some indicators, it appears that we have not yet experienced what we call a theoretical bull market (or a crazy bull market), as shown in the figure below.
There may be two possibilities here:
The cryptocurrency market no longer follows some indicators and rules of historical cycles.
The cryptocurrency market has not yet truly welcomed the so-called theoretical bull market.
So, which of these two situations do you personally lean towards?
We do not provide a specific answer here, as this question does not have a standard answer; it is a matter of perspective.
In recent series of articles from Talking About Li and Outside, we have mentioned Trump quite frequently, as his every move currently has a direct impact on market trends. For example:
Last year, Trump's friendly commitments to cryptocurrency helped Bitcoin break through the historical threshold of $100,000, while this year, his tariff policies have led to a continuous correction in Bitcoin, and the much-anticipated U.S. Bitcoin strategic reserve has merely turned into a collection of confiscated assets.
On one hand, various policies after Trump took office have caused the market to plummet, while on the other hand, WLFI (World Liberty Financial, a Trump family project) continues to accumulate some cryptocurrency assets (including ETH, etc.), and they even recently announced the launch of a new dollar stablecoin, USD1, which creates a rather strange and interesting phenomenon.
In the current overall market environment, it seems that the catalysts for the cryptocurrency market need to rely more on external environmental factors (due to insufficient internal innovation). If the market wants to rise again, it mainly hinges on three points:
Trump's tariff policies can end within a few months.
The Federal Reserve adopts new quantitative easing (QE) policies to stimulate the market (i.e., providing more liquidity conditions, causing some liquidity to overflow into the cryptocurrency market).
Global net liquidity continues to increase (although the dollar remains king, the increase in net liquidity from the EU, China, and Japan will also somewhat promote the price increase of high-risk assets like Bitcoin).
However, these major points do not seem to be very clear at the moment, and the market may need some time to wait and digest.
Let’s make a single-angle hypothesis (note that this is just a hypothesis). If we look solely at the macro Global M2 indicator, because this indicator has had about a 70-day lag with Bitcoin's trend for some time, for example, if Global M2 reaches a peak of $108 trillion on September 23, 2024, then BTC may reach a peak of $108,000 on December 17, 2024.
Therefore, theoretically, if Global M2 reaches a peak of $109 trillion on March 24, 2025, then, barring any new major black swan events, BTC may rebound to a peak again in June 2025 (just a peak, not necessarily breaking the historical high).
Of course, you can directly deny this hypothesis. Since it is a hypothesis, it could be right or wrong; there is no need for further debate here. We are merely providing a possible line of thought, not as any investment guidance.
Currently, there are many viewpoints and voices online. I have also occasionally been following some KOLs' remarks and sentiments on CT (Crypto Twitter) and found that:
Most KOLs seem to have turned bearish, and most of these KOLs claim to have accurately escaped the peak at high levels, which I find quite admirable.
Some KOLs believe that the bull market has not yet started, and a $100,000 Bitcoin is merely a new starting point, predicting that Bitcoin's price will continue to break new highs and reach $150,000 by the end of the year.
Others believe that a new round of upward momentum may occur in the second quarter of this year… and so on.
However, everyone has different thoughts or views, and the corresponding strategies they adopt will also vary. What others say or do is not important; what matters is what you will do. Do you have different coping strategies?
Personally, although I sold 10% of my Bitcoin last December, strictly speaking, I am still in a state of actively accumulating coins and am once again "enjoying" the profit pullback. Fortunately, I have experienced this many times, and the current market sentiment has not brought me any new anxiety.
Because capital is always fluid, the financial market will never lack hotspots. I have noticed that many people seem to be researching gold, U.S. stocks, Hong Kong stocks, etc., which I have not participated in. Besides not having enough time and energy, I still choose to remain focused in the cryptocurrency field and continue to refine myself.
This morning, I happened to see a partner's text sharing in the group, which resonates with my current mindset:
Tomorrow (April 2) is a special day that Trump has been hinting at recently. The president may announce an average increase of over 15% in reciprocal tariffs on imported products from about 25 countries. Additionally, there are some important economic-related data from the U.S. to be released this week. In the coming days, we may continue to see significant market fluctuations. If you are unsure of what to do at this time, the best course of action is to do nothing.
It is precisely because of Trump's possible reciprocal tariff measures that Goldman Sachs has significantly raised its inflation expectations for the U.S. and lowered its GDP growth expectations. Goldman Sachs also predicts that the Federal Reserve will cut interest rates three times in 2025 (in July, September, and November), ultimately keeping the federal funds rate forecast at 3.50-3.75%.
Although institutions like Goldman Sachs have provided new expectation reports, on one hand, there are high inflation expectations, and on the other hand, there are interest rate cut expectations, which undoubtedly adds more new uncertainties to the market.
Looking at another piece of data, as of now, the average tariff rate in the U.S. has reached about 8%, the highest level since 1970. If the U.S. tariff war escalates this week, we may also see a new round of retaliatory policies from some countries, which could even evolve into a large-scale global trade war. In other words, this month (April), we may witness the average tariff rate in the U.S. breaking the record set in 1946. As shown in the figure below.
Additionally, for Trump, who enjoys stirring things up, it seems that the tariff war is not enough; he has also been frequently engaging in other provocative actions. For example, Trump stated yesterday (March 30) that if Iran does not reach an agreement with the U.S., it will face bombing. As shown in the figure below.
Tariff war + military threats seem to have become Trump's current forte, and the impacts of these events will not only affect the cryptocurrency market and stock market but will also have a certain degree of influence on the global economy and situation.
Today (April 1) is April Fool's Day, and tomorrow is what Trump refers to as America's Liberation Day (April 2 is called Liberation Day by U.S. President Trump). Will April mark a new beginning for the overall market trend, or a new ending?
We will leave it to time to tell us the answer.
As ordinary investors, we seem unable to change the overall situation; the only thing we can change is our own positions (protect your positions and patiently wait for new profit opportunities).
