Crypto Market Dynamics from January to February 2025: Trump’s First Month in Office, Market Fluctuation Intensifies

In early 2025, Trump began his second term in office. On one hand, the new government introduced a series of policy benefits; on the other hand, the groundbreaking progress of DeepSeek impacted the AI sector of the US stock market, triggering a chain reaction in the financial markets. In February, with the release of key economic data, adjustments to the regulatory framework, and the acceleration of technological innovation, the crypto market experienced intense fluctuations and restructuring under the influence of these three forces.

In February 2025, there were many changes in the macroeconomic situation in the United States. A series of key economic indicators declined, and the new government's significant increase in import tariffs had a mutual impact, profoundly affecting the economy of the United States and even the global economy, causing turmoil in the global market.

Despite the U.S. fourth-quarter GDP revision maintaining a robust growth rate of 2.3%, multiple indicators show that the U.S. economy has entered a "low growth channel." The labor market is clearly cooling: 187,000 non-farm jobs were added in February, below the expected 200,000; the month-on-month growth rate of hourly wages has slowed to 0.2%, the lowest level since October 2023. In addition, the University of Michigan consumer confidence index has deteriorated for three consecutive months, dropping to 98.3, reflecting growing concerns among the public about declining purchasing power.

In January, the core CPI in the U.S. rose by 0.3% month-on-month and increased by 2.5% year-on-year, with the year-on-year growth rate down by 0.1 percentage points compared to December last year, indicating a slight "cooling" of inflation. The annual rate of the core Personal Consumption Expenditures (PCE) price index in the U.S. for January is 2.6%, the lowest since June 2024, in line with market expectations, and is one of the few positive pieces of news.

However, the tariff policy will become the biggest uncertainty for inflation in the United States. The new government announced a 10% tariff on imported goods from Mexico and Canada (effective March 4), which directly raises the costs of key categories such as automobiles and agricultural products. According to estimates from the Cleveland Fed model, this policy could cause the U.S. CPI to rise an additional 0.3 to 0.5 percentage points in the second quarter.

Regarding interest rates, it is currently widely expected that the Federal Reserve's policy rate will remain unchanged for the time being. According to data platforms, the probability of the Federal Reserve maintaining the rate unchanged in March is 95.5%, while the probability of a 25 basis point rate cut is 4.5%. By May, the probability of maintaining the current rate is 73.2%, the cumulative probability of a 25 basis point rate cut is 25.8%, and the cumulative probability of a 50 basis point rate cut is 1.1%. However, given the uncertainty of inflation and the inflationary pressures that tariff policies may bring, the Federal Reserve's rate cut decision still has 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 seeks to balance risks through prudent monetary policy, while the new government's series of tariff increases not only exacerbate the complexity of this issue but also continue to impact the pricing logic of global supply chains, amplifying turmoil in the global economy. Historical experience shows that trade protectionism often fails to truly address structural economic problems. Finding certainty in policy games will be the central theme of the global market in the next six months.

In the first two months of 2025, the hottest topic in the AI field is undoubtedly the emergence of DeepSeek. The biggest impact DeepSeek has had on the US stock market is that it has shattered the previous market expectations for the future narrative of AI.

The development of AI in the market has inevitably led to some bubbles. DeepSeek has burst part of the AI bubble, as its open-source model significantly reduces computing power dependency through algorithm optimization, pushing the industry from "computing power competition" to "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 narrative of the "moat" supported by high capital expenditure of tech giants in the US stock market.

The impact of DeepSeek, combined with concerns over global supply chain turmoil caused by tariff policies, has hit technology stocks—the sector with the highest degree of globalization—hardest, leading to a sluggish overall performance in the U.S. stock market: Throughout February, the Nasdaq suffered the most due to the heavy weight of technology stocks, plummeting by 4%, erasing the gains accumulated earlier in the year and marking the worst monthly performance since April 2024; the Dow Jones, owing to a larger proportion of traditional industries, was relatively more resilient with a cumulative decline of 1.58%, while the S&P 500 fell in between the two, decreasing by 1.42%.

The market's re-examination of the competitive landscape of the American AI industry has become apparent, which is directly reflected in the performance of large tech stocks in the US stock market. From the earnings reports, there is nothing particularly noteworthy in these companies' latest financial statements. Even Nvidia, which performed the best, faced profit-taking from investors due to not significantly exceeding expectations, triggering a sell-off. Overall, as mentioned earlier, there is currently no clear trading direction in the market, and the price performance of large tech stocks exhibits the characteristics of "month-end policies and sentiment dominating the plunge." To summarize in the words of an investment analyst—"Looking around, fear has indeed become a collective sentiment."

In this environment of low market sentiment, crypto assets inevitably become innocent victims. Data shows that the six-month rolling correlation indicator between Bitcoin and the Nasdaq recently rose to 0.5, reaching a new high since 2023, which means that fluctuations in the US stock market are intensifying, and the impact on the crypto market is becoming increasingly evident. 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 in the crypto market, which can easily lead to downward pressure on crypto market prices. This chain reaction highlights the market's "over-defense" mentality towards the impact of DeepSeek and policy uncertainty.

With the new U.S. government taking office, crypto policy has shifted from campaign promises to substantive actions. The fire that the new government has stoked the most is probably the official Meme token released on January 18.

The market capitalization of the token once surpassed 14.5 billion USD, followed by a subsequent drop of 60%. This wave of crazy speculation in the market has made a group of people wealthy, while causing severe asset depreciation for others. A deeper insight from this event is that encryption is radiating from the financial sector to the political arena. If the U.S. SEC's approval of a Bitcoin spot ETF is a milestone for encryption entering the traditional financial sector, then this issuance of tokens is a testament to encryption's entry into the political sphere. Through operations like "token swaps," it directly converts political influence into market liquidity, demonstrating the potential of crypto assets as a new political tool. Whether it is multiple U.S. states competing to advance Bitcoin reserve legislation or the EU's MiCA framework accelerating the compliance process, the global regulatory game reveals an important clue: "code is power."

In addition to issuing coins, the crypto circle is also continuously paying attention to the degree of policy implementation. After the new government took office, the crypto field welcomed many favorable developments, such as the establishment of a cryptocurrency working group, the drafting of new regulatory plans for digital assets, and the exploration of establishing a national cryptocurrency reserve. Meanwhile, the SEC revoked SAB 121, allowing banks to custody digital assets after additional guidance from regulators. As a result, Bitcoin's price surged positively, with a month-on-month increase of 9.5% by the end of January. However, subsequent news from DeepSeek and tariff-related reports impacted the market, and by February, the crypto market experienced a historic adjustment, with Bitcoin falling below $100,000, down 17.39% in February, closing at around $85,000, with the monthly decline concentrated in the last week of the month. This wave of crash does not have a single main cause; it is more like the fluctuation of the chaotic market itself, which is a chain reaction of risk asset sell-offs under tariff policy shocks, and also has the effect of self-purification after excessive market leveraging.

It is worth noting that Bitcoin has still shown a certain resilience during this wave of fluctuation, while other alternative coins have been more severely impacted by negative events within the market. Ethereum has reached its lowest point of the year due to the fallout from an incident involving a certain trading platform, and Solana has also experienced significant fluctuations due to the political controversies surrounding its token issuance. In mid to late February, some institutions viewed this short-term volatility as a long-term allocation window. For example, a 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 gaming company also announced on February 28 that the group further increased its holdings in Bitcoin, acquiring about 100 Bitcoins for approximately $7.95 million, with a purchase cost of about $79,495 each.

If we extend the timeline, we find that since last year, the price trends of gold and Bitcoin have increasingly converged. Throughout 2024, the overall fluctuations of both have shown a certain degree of correlation. In February of this year, the price of gold also experienced a sharp drop of over 100 dollars within a week after reaching a historical high of 2942 dollars/ounce. Previously, some analytical institutions had analyzed the moderate linear correlation between Bitcoin prices and gold prices in 2023, at that time believing Bitcoin was still positioned as a risk investment. Now the situation has changed, with the price fluctuations of both closely linked, indicating that Bitcoin's "digital gold" nature is becoming increasingly apparent. The fundamental reason lies in the fact that they are both viewed as alternatives to fiat currency. As the global economic landscape and geopolitical situation continue to evolve, the prices of both may maintain a certain degree of interconnectedness.

The current crypto market is caught in a kind of news vacuum, with diminishing marginal effects of traditional narratives (such as halving cycles and ETF fund inflows). However, from the signals released at the recently concluded Hong Kong Consensus Conference, despite the short-term lack of explosive narratives, three major trends are quietly reshaping the market: First, a transformation of the regulatory paradigm, with a pro-crypto majority in the U.S. Congress pushing the FIT21 bill, the SEC reducing the size of its enforcement division, and regulation shifting from suppression to guidance, clearing obstacles for institutional entry. Second, the crypto market in 2025 is at a crucial turning point from "policy arbitrage" to "value creation" and from "speculation-driven" to "technology-driven". Lastly, the integration of AI and encryption could become the most noteworthy new breakthrough. If the AI sector begins to rebound and integrates with the crypto market, a new narrative may emerge. As the market completes its leverage clearing and the collaborative narrative of AI and crypto takes shape, a new round of upward breakthroughs may be imminent. Historical experience repeatedly verifies that a new dawn often emerges in the darkest moments, intertwined with fervor and fear.

With the new government in office for a month, the market has entered a chaotic period, with complexity exceeding previous levels. The crypto market has also been affected by this uncertainty, experiencing rare frequent fluctuations. Although the inherent weaknesses of human nature have sown the seeds of risk in the market, the immutable scarcity of Bitcoin has never wavered, granting it a tenacious vitality that penetrates the cyclical fog. As a famous film once said: "Chaos is not a pit; chaos is a ladder."

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