Turmoil at the Beginning of 2025: New Government Policies and Technological Innovations Trigger Market Volatility

In January and February 2025, as the new government completed its first month in power, the market experienced significant fluctuations. On one hand, policy dividends had a positive impact; on the other hand, major breakthroughs in the AI field triggered turbulence in tech stocks, which in turn affected the entire financial market. Particularly in February, with the release of key economic data, adjustments to the regulatory framework, and accelerated technological innovation, the cryptocurrency market also continuously experienced shocks and restructuring.

In February 2025, the macroeconomic landscape in the United States showed multiple changes. A series of key economic indicators declined, while the new government's policy of increasing import tariffs had a profound impact on the U.S. and even the global economy, triggering fluctuations in global markets.

Although the revised GDP growth rate for the fourth quarter in the U.S. remains at 2.3%, multiple indicators show a slowdown in U.S. economic growth. Non-farm employment increased by 187,000 in February, below the expected 200,000; the month-on-month growth rate of hourly wages fell to 0.2%, hitting a 17-month low. The University of Michigan Consumer Confidence Index has declined for three consecutive months to 98.3, reflecting growing concerns among residents about a decrease in purchasing power.

In January, the U.S. core CPI rose by 0.3% month-on-month and increased by 2.5% year-on-year, a slight decrease of 0.1 percentage points compared to the previous month, indicating a slight easing of inflation. The year-on-year core PCE price index in January was 2.6%, hitting an 8-month low, in line with market expectations.

However, tariff policies will become the biggest variable affecting inflation in the United States. The new government announced a 10% tariff on imported goods from Mexico and Canada, directly raising the costs of automobiles, agricultural products, and more. It is estimated 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 rates in the short term. However, considering the uncertainty of inflation and the pressure that tariff policies may bring, the Fed's decision on interest rate cuts still holds some variables.

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 attempts to balance risks through prudent monetary policy, while the new government's tariff policies complicate the issue further, continuously impacting the pricing logic of global supply chains and exacerbating global economic uncertainty.

The most striking event in the field of AI is the emergence of a new type of AI system, which has shattered the existing perceptions of the development path of AI in the market. This breakthrough significantly reduced computational power requirements through algorithm optimization, pushing the industry from a "compute power race" to a transformation towards "algorithm efficiency," reshaping the market's demand logic for AI infrastructure. For example, the new system completed training using only 2048 high-end GPUs, whereas traditional models required tens of thousands of similar chips, directly undermining the "moat" built by technology giants through high capital expenditures.

This technological breakthrough, combined with global supply chain concerns triggered by the new government tariff policy, has caused technology stocks, being the most globalized sector, to be the hardest hit. In February, the Nasdaq fell sharply by 4% due to the high weight of technology stocks, wiping out its gains for the year and marking the worst monthly performance in nearly 10 months; the Dow Jones, with a larger proportion of traditional industries, fell relatively less, with a cumulative decline of 1.58%; the S&P 500 fell in between, down 1.42%.

The market is beginning to reassess the competitive landscape of the American AI industry, which is directly reflected in the stock performance of tech giants. Even companies with impressive earnings have faced profit-taking due to not significantly exceeding expectations. Overall, the market lacks a clear direction, and large tech stocks display characteristics of "month-end policy and sentiment-driven declines."

In this environment of low market sentiment, crypto assets are also difficult to stand alone. Data shows that the six-month rolling correlation indicator between Bitcoin and the Nasdaq has recently risen to 0.5, reaching a nearly two-year high, which means that the volatility of the US stock market has a greater impact on the crypto market. Once the stock market experiences fluctuations or panic spreads due to unexpected factors, investors' risk appetite decreases, leading to withdrawals from the crypto market, which can easily result in downward pressure on the crypto market.

The new government's cryptocurrency policy has shifted from campaign promises to substantive actions. On January 18, the government announced the sale of an official Meme token, which at one point had a market value exceeding $14.5 billion, before plummeting by 60%. This event reveals the trend of cryptocurrencies expanding from the financial sector into the political arena. If the approval of a Bitcoin spot ETF by a regulatory agency is a milestone for cryptocurrencies entering traditional finance, then the government issuing tokens is a sign of cryptocurrencies venturing into politics, demonstrating the potential of crypto assets as a new type of political tool.

After the new government took office, the cryptocurrency sector welcomed many favorable developments, such as the establishment of a cryptocurrency task force, the drafting of new digital asset regulatory proposals, and the exploration of establishing a national cryptocurrency reserve. At the same time, a regulatory agency revoked the restrictions on banks custodizing digital assets. As a result, the price of Bitcoin saw a month-on-month increase of 9.5% by the end of January. However, following breakthrough news in AI and the impact of tariff policies on the market, the cryptocurrency market experienced severe adjustments in February, with Bitcoin falling below $100,000, a monthly decline of 17.39%, closing at around $85,000.

It is worth noting that Bitcoin has shown a certain resilience during this round of fluctuations, while other alternative coins have experienced deeper declines. Ethereum hit a year-to-date low due to an incident on a certain trading platform, and a particular public chain also experienced significant volatility due to political issues surrounding token issuance. Some institutions view this short-term fluctuation as a long-term allocation opportunity, as a certain listed company invested $1.99 billion to increase its Bitcoin holdings in mid to late February.

From a longer time perspective, since last year, the price trends of gold and Bitcoin have increasingly converged. In February of this year, after gold prices hit a historic high of $2942 per ounce, they plummeted by over $100 within a week. The price fluctuations of the two are closely linked, indicating that Bitcoin's "digital gold" attribute is becoming more apparent, fundamentally because they are both seen as alternatives to fiat currency.

The current cryptocurrency market is in a news vacuum, with the diminishing marginal effect of traditional narratives (such as halving cycles and ETF inflows). However, three major trends are reshaping the market: first, the transformation of the regulatory paradigm from suppression to guidance, clearing obstacles for institutional entry; second, the crypto market is shifting from "policy arbitrage" to "value creation" and from "speculation-driven" to "technology-driven"; finally, the integration of AI and cryptocurrency may become a new breakthrough.

The new government has been in office for a month, and the market has entered a chaotic period, with complexity far exceeding that of the past. The cryptocurrency market has also experienced rare frequent fluctuations. Despite the human weaknesses that sow the seeds of risk in the market, Bitcoin's immutable scarcity property remains consistent, granting it the vitality to traverse through cyclical fogs. As stated in a certain literary work: "Chaos is not a pit, but a ladder." In this period full of uncertainty, market participants need to remain vigilant while also being insightful to potential opportunities.