Analysis of Financial Market Fluctuations and the Prospects of Crypto Assets

Recently, the global financial markets have experienced a week of turmoil, primarily due to the risk-averse sentiment and capital flows stemming from tariff issues. Although the market had a slight respite over the weekend, whether this calm can be sustained remains uncertain. Tariff frictions, as sudden events, often lead to significant fluctuations in market sentiment in the short term.

However, once the market has a clear understanding of the fundamental changes in the impact of tariffs and the release of risk aversion sentiment, the financial markets can find their balance point again. This also explains why global stock markets, particularly the U.S. stock market, closed higher last Friday, ending a week of Fluctuation. We can clearly see this from the changes in the volatility index of the S&P 500.

Last week, the VIX index reached a recent high, a level that has been rare in the past few years, only similar situations occurred during the financial turmoil triggered by the pandemic in 2020. This also explains why the market experienced such significant fluctuations in the past week.

As this huge fluctuation temporarily calms down, the focus influencing the crypto assets market trends has returned to the two perennial topics of inflation and interest rate cuts. Only interest rate cuts can bring about the true "flooding the golden mountain" effect, providing growth momentum for risk assets represented by Bitcoin.

By comparing the global broad money supply (M2) over the past 10 years with the trends of Bitcoin, we can clearly see the close correlation between the two. The massive increase in Bitcoin over the past 10 years is built on the foundation of the explosive growth of global M2, and this correlation far exceeds that of other financial indicators.

This also explains why Bitcoin always reacts whenever data on inflation or interest rate cuts is released, as this data ultimately affects whether new funds can flow into the Crypto Assets space.

However, current participants in the Crypto Assets market seem to be overly focused on the Federal Reserve's interest rate cuts, while neglecting another equally important indicator - the asset size of the domestic central bank. This indicator reflects the current liquidity situation in our country and is closely related to the fluctuation of Bitcoin.

Historical data shows that changes in the scale of domestic central bank assets are highly correlated with the price increases of Bitcoin over the past three cycles. This correlation has almost been present in every major surge of Bitcoin and corresponds with the four-year cycle.

It is worth noting that, in terms of asset scale, as of January 2025, the total deposits in our country far exceed those in the United States, which implies that there are more financial possibilities in our country. If liquidity improves, it may bring about certain positive changes.

Of course, whether the improvement in capital liquidity can directly benefit the Crypto Assets market still depends on certain policy restrictions. However, recent policy changes in Hong Kong have provided some positive signals, showing a significant improvement in the policy environment and market access compared to a few years ago.

Overall, while paying attention to the trends in the global financial market, we should not overlook the changes in domestic financial data. Being prepared to respond to potential adjustments in monetary policy and closely monitoring their potential impact on the Crypto Assets market will be the key focus for investors.