Crypto Market March Report: Through the Fog, Bitcoin May Welcome a Reversal in the Second Quarter

The uncertainty of the macroeconomic situation, coupled with the rebound in inflation expectations, has intensified market concerns that the U.S. economy may fall into "stagflation" or even "recession." This has significantly impacted high-risk assets.

This expectation has suppressed the high valuations of US stocks and transmitted to the crypto market through Bitcoin ETFs.

Short-term investors in Bitcoin have sold off, resulting in the largest losses in this cycle, and have preliminarily completed the repricing of Bitcoin. Long-term holders have shifted from "reducing positions" to "increasing positions," absorbing some of the selling pressure, which has brought the price to a new equilibrium around $82,000. However, the market remains weak, and short-term investors are still in a significant state of unrealized losses. If the U.S. stock market experiences further turmoil leading to the withdrawal of funds from Bitcoin ETFs, short-term investors are likely to join the selling ranks, further pushing prices down.

The US stock market has currently completed a moderate adjustment, but the subsequent trend still needs to pay attention to the specific details of the tariff policy on April 2, as well as whether the employment data in March shows significant deterioration. If these two factors worsen beyond expectations, the market may further decline.

As the decline widens, both the US stock market and Bitcoin have seen significant corrections, and panic sentiment has been released to a considerable extent.

We believe that as the impact of tariff policies gradually dissipates and the Federal Reserve approaches the restart of its rate cut process, Bitcoin is expected to welcome a reversal trend in the second quarter.

Macroeconomic Finance: Economic and Employment Data Drive the Rise of "Stagflation" and Even "Recession" Expectations, U.S. Stocks Break and Fall

The new trading judgment framework was initially formed at the end of February and has been continuously updated in March based on various economic, employment, and interest rate data.

This framework mainly considers the risks of "economic stagnation" or even "economic recession" that may be triggered by tariff policies, as well as the choice of whether the Federal Reserve prioritizes employment or prioritizes reducing inflation.

The employment data for February shows that job growth has slowed but remains relatively robust, with the unemployment rate slightly rising to 4.1%, indicating a slight loosening of the labor market. Wage growth is higher than the inflation rate, indicating an improvement in real wages, but it may exert pressure on inflation.

The CPI and PCE data for February both indicate a rebound in inflation, with core indicators showing strong stickiness. This means that the Federal Reserve's inflation target faces severe challenges.

The Federal Reserve's March meeting maintained interest rates unchanged and for the first time explicitly stated that tariff policies could impact economic downturns, but believes that the risk of recession "has increased somewhat, but is still not high."

Federal Reserve Chairman Powell stated that inflation may be delayed in falling to the 2% target due to policies such as tariffs, and hinted that he would consider lowering interest rates if the labor market deteriorates. The market has begun to anticipate three interest rate cuts this year.

In March, the University of Michigan's Consumer Confidence Index dropped significantly, with inflation expectations rising to a multi-year high. Meanwhile, the Atlanta Fed estimated the GDP growth rate for the first quarter to be -2.8%. These data have raised concerns in the market, leading to a decline in the stock market and a sharp increase in the volatility index.

Amidst economic slowdown and inflation concerns, funds continue to withdraw from the stock market. The Nasdaq, S&P 500, and Dow Jones indices fell by 8.21%, 5.75%, and 4.20% respectively in a single month, retreating to or near the 250-day moving average.

Safe-haven funds are flooding into the bond market and gold. The 2-year U.S. Treasury yield fell by 1.15% in a single month, while the 10-year yield dropped by 0.45%. London gold broke through the $3000 barrier, surging 8.51% in one month to $3123.97 per ounce.

Consumer confidence is low, inflation expectations are rising, and the market is increasingly pessimistic about the growth prospects of the U.S. economy, even fearing that uncontrolled tariff policies may drive the economy into "stagflation" or "recession." The uncertainty of tariff policies is the biggest variable, dragging down the U.S. economy and consumer confidence. The market is beginning to expect that the Federal Reserve may cut interest rates in June, with the number of expected rate cuts rising from two to three. While the inflation issue may be temporarily shelved, it has not disappeared; instead, it may be exacerbated by tariff policies. The actual impact of tariff policies remains to be further observed.

Crypto Assets: Operating in a Descending Channel, Extreme Cases May Drop to $73,000

Trader concerns and panic dominated the capital market trends in March. Bitcoin remained relatively stable in March after a significant drop at the end of February, but the rebound was weak, ultimately recording a monthly decline of 2.09%.

In March, Bitcoin opened at $84,297.74, closed at $82,534.32, reached a high of $95,128.88, and a low of $76,555.00, with a fluctuation of 22.03% and trading volume slightly increased compared to the previous month.

In terms of time, after a sharp drop at the end of February, Bitcoin experienced a technical rebound in the second and third weeks of March, but the strength was weak, rebounding only 16% from the lowest point. In the following week, with the fluctuations in U.S. tariff policies and weakening economic data, Bitcoin followed the U.S. stock market's volatility downward, ultimately recording a monthly decline.

Technically, the whole month has been operating within the descending channel since February, positioned below the first rising trend line of this cycle. After the decline at the beginning of the month, trading enthusiasm has sharply decreased, with trading volume declining week by week. For most of the time, it has been operating below the 200-day line, briefly touching the 365-day line on March 11.

Despite the outflow of Bitcoin in centralized exchanges and a small inflow of funds into Bitcoin ETFs, Bitcoin, as a high-risk asset, still struggles to attract buyers against the backdrop of turmoil in the US stock market.

On the policy front, there are many favorable developments in March. The U.S. government has officially included confiscated Bitcoin in its strategic reserves and held a crypto summit to discuss industry development. Regulatory agencies have provided guidelines for banks to participate in crypto business. Several states have also proposed bills to support Bitcoin. All of these indicate that Bitcoin and crypto assets are gradually taking root in the United States.

However, the market is currently more focused on short-term risks, neglecting these long-term benefits. Compared to the U.S. stock market, which has returned to its November 6 levels, Bitcoin is still relatively strong, with a closing price of $82378.98, which remains above the $70553 from November 5.

If the tariff policy exceeds expectations or worse employment and economic data emerge, Bitcoin cannot be ruled out from retracing all the gains of the "Trump market" and dropping to $70,000-$73,000. However, this scenario would only occur in extreme circumstances. If the U.S. stock market can stabilize after the negative impact of the tariffs is fully released on April 2, the previous $76,000 may become the low point of this round of adjustment.

Capital: The outflow of Bitcoin spot ETFs has slowed down, while stablecoins continue to flow in.

In March, ETF funds continued to flow out overall, but the scale significantly decreased to $634 million. The outflow was mainly concentrated in early March, but there was a continuous inflow for 10 trading days after the middle of the month.

Stablecoins continued to flow in this month at $4.893 billion, slightly lower than last month's $5.3 billion.

The inflow and outflow of ETF funds are completely synchronized with the fluctuations in Bitcoin prices, which corroborates that this round of adjustment is due to the spillover effect of the decline in the US stock market. The funds in the market have not exhibited independent behavior, but have reacted in accordance with the market.

The price of Bitcoin will continue to move in tandem with the U.S. stock market, particularly the Nasdaq index. Therefore, U.S. tariff policies and Federal Reserve interest rate cuts will continue to affect medium- and long-term trends. The scale and sustainability of ETF fund inflows will become an important indicator for observing short- and medium-term trends.

Secondary Sell-off Paused: Chips Returned to Long-term Holders for Cooling, Short-term Investors Continue to Face Pressure

Before the adjustment in February, the long-term holders began the second wave of selling, which was both a response to the excess liquidity and objectively suppressed the rise in Bitcoin prices. Subsequently, as the themes of U.S. stock trading changed, both U.S. stocks and Bitcoin valuations faced downward pressure, and short-term investors began to sell off for safety.

With the sharp decline in the US stock market, the internal structure of the crypto market has suffered a huge impact and made corresponding adjustments. When short-term investors intensified their selling, causing prices to drop rapidly, long-term holders stopped selling around mid-February and instead "increased their holdings," significantly reducing the downward pressure on the market, lowering the heat of the chips, to help the market cope with liquidity contraction, resulting in a new equilibrium after the price drop.

According to data, the losses caused by this round of decline have exceeded the Carry Trade storm of 2024, becoming the largest loss interval in the new cycle since January 2023. On-chain, this is reflected by a large amount of Bitcoin, originally priced in the range of 90,000-110,000 dollars, entering the range of 76,000-90,000 dollars, partially solving the problem of insufficient chip distribution originally in the range of 73,000-90,000 dollars.

During this rapid decline, although some long-term holders have taken profits, the scale is not large. The chips that changed hands in the panic mainly came from Bitcoin traded in the range of 90,000-110,000 USD after November last year.

Although the short-term investor group has completed a considerable amount of selling, the overall chain's profit and loss situation is still not optimistic. In this round of decline, the short-term investor group experienced a maximum floating loss of 14%, close to 16% on August 5, 2024. As of March 31, the short-term investor group still has a floating loss of 12%, and the patience and endurance of this group still face significant challenges.

This pressure, if converted into selling pressure, could drive Bitcoin down to $73,000, which is the upper range of the new high consolidation zone and the price level before Trump's election.

Conclusion

From external factors, the current Bitcoin price is completely constrained by the chaotic tariff policy and the economic "stagflation" or even "recession" expectations caused by inflation stickiness, as well as the game between whether the Federal Reserve will compromise on interest rate cuts.

From an internal perspective, short-term investors have experienced the largest scale of selling losses in this cycle over the past month. Currently, the selling pressure has shrunk, but due to the significant floating losses, continued selling to alleviate the pain cannot be ruled out, although the probability is low. Long-term holders converting from selling to increasing will have a great stabilizing effect on the market.

Stablecoins continue to flow in, and there are signs of inflows into Bitcoin ETFs. However, if U.S. stocks fall, ETF funds may sell off again, which will become a major force driving prices down.

On April 2, the tariff policy will reach a phase peak, and the US stock market may see a short to medium-term bottom. If the tariff policy does not worsen too much, and the US economy shows signs of recession but is not severe, while the Federal Reserve lowers interest rates again in June, then the Bitcoin, which has already undergone significant adjustments, is likely to experience a reversal in the second quarter.

After experiencing turbulence in the first quarter, the outlook for the second quarter remains unclear, but the toughest times may be behind us. Once Washington and the Federal Reserve return to a rational game state, the market should be able to return to its own operating rules.