Crypto Market Weekly Review: Economic Data Provides Brief Respite, but Risk of Continued Adjustment Remains

This week, Bitcoin opened at $80,708.21 and closed at $82,562.57, with a weekly increase of 2.31%, a volatility of 10.86%, and a trading volume that continued to shrink compared to last week. The price is operating within a descending channel, showing a slight rebound.

The CPI data released by the United States was slightly higher than expected, and news of a potential easing of the Russia-Ukraine conflict provided a brief respite for the US stock market and the Bitcoin market.

However, the valuation of the U.S. stock market is still in a downward bottoming phase, and historical data suggests there may be further room for decline. The fundamental reason for the decline in valuation—the chaos in tariff policies may trigger inflation, leading to concerns that the U.S. economy could fall into "stagflation"—has not yet been alleviated. Policymakers do not seem prepared to change the current course, and the Federal Reserve Chairman remains committed to a data-driven stance.

The longer this state of confusion and stalemate lasts, the harder it will be for the "stagflation" worries to dissipate, and the greater the room for market valuation adjustments. This is also the main reason for our cautious stance on the Bitcoin rebound in the short term.

Macroeconomic Data Analysis

Last week, the employment data released by the United States showed that non-farm employment figures were slightly below expectations, and the unemployment rate rose slightly, indicating signs of a slowdown in the job market, which intensified market concerns about a recession in the United States, triggering a significant sell-off.

This week, the U.S. released the February CPI data. The unadjusted CPI rose by 2.8% year-on-year, slightly lower than the expected 2.9%, with the previous value at 3%; the seasonally adjusted CPI increased by 0.2% month-on-month, below the expected 0.3%, with the previous value at 0.5%. This data alleviated the panic caused by last week's employment report and provided a breather for the market.

Under the impact of last week's sharp decline and this week's favorable CPI data, the U.S. stock market temporarily stabilized from a deep drop, recovering some of its losses, but still showed a downward trend for the week. The Nasdaq index remains below the 250-day moving average, with a weekly decline narrowed to 2.43%; the S&P 500 index recovered above the 250-day moving average; the Dow Jones index fell by 3.07%, slightly rebounding near the 250-day moving average.

On March 14, the University of Michigan announced that the preliminary consumer confidence index for March was 57.9, far below the market expectation of 63.1 and the previous value of 64.7. At the same time, the preliminary one-year inflation rate expectation rose to 4.9%, higher than the expected 4.2% and the previous value of 4.3%. This indicates that American consumers' concerns about the economic outlook have intensified.

The decline in the Consumer Confidence Index reflects the impact of policy uncertainty on the confidence of end consumers. The market and the business community generally feel uneasy, and more negative market feedback along with a longer period of uncertainty may be needed to prompt a policy shift.

On Friday, global stock markets generally rebounded, mainly benefiting from news that the Russia-Ukraine conflict may be easing - both sides are reportedly considering reaching a 30-day ceasefire agreement.

There is a view that some policymakers may attempt to achieve "economic recession" through measures such as government layoffs and trade wars to force the Federal Reserve to change its monetary policy. Although this claim is difficult to verify, it seems to align with market performance in outcome.

From a more objective perspective, the essence of this round of adjustment in the US stock market may be a valuation adjustment triggered by interest rate cut expectations. The Shiller Price-Earnings Ratio (CAPE) of the S&P 500 index reached a peak of 37.80 times in December last year, close to the recent high of 38.71 times set in November 2021. This high valuation incorporates expectations of improved trade policies and rapid development in the AI industry. Since the beginning of this year, expectations for AI growth have been frustrated, and the impact of tariff policies and layoffs on economic growth expectations has made it difficult for the market to maintain such a high valuation, starting to seek a new balance point downward.

Currently, the maximum declines of the Nasdaq, S&P 500, and Dow Jones Index have reached 14.59%, 10.36%, and 9.79% respectively, all approaching the 250-day moving average and entering the "market correction" range (10%-20% decline). However, this does not mean that the market adjustment has ended. The current Shiller price-to-earnings ratio of the S&P 500 index is 34.75 times, down about 8.07% from its peak. According to historical patterns over the past 20 years, if it continues to decline, it may return to 32.89 times, indicating a further drop of more than 5%; if it reverts to the mean level of 27.25 times, there would still be a retracement space of over 21%. Of course, such a deep adjustment has a low probability of occurring, unless extreme circumstances arise.

Amid market turbulence, risk aversion sentiment has driven gold prices to briefly break through $3000 per ounce. The US dollar index has slightly rebounded after hitting a new low, with the 2-year Treasury yield rising by 0.7% and the 10-year Treasury yield increasing by 0.37%, indicating that some funds are starting to withdraw from US Treasuries and shift towards buying stocks.

Overall, the U.S. stock market has entered a correction phase, but the trend of inflation and the prospects for interest rate cuts remain unclear. The effects of tariff policies and layoffs have not fully manifested, which may cause the market to continue to correct downward to adapt to the current complex economic environment. Influenced by the Bitcoin spot ETF, we believe that Bitcoin prices will still maintain a certain correlation with the performance of the U.S. stock market. Although Bitcoin recently rebounded to around $83,000, it may still drop to $73,000 within the next two months.

The Fund Flow of Stablecoins and Bitcoin Spot ETFs

Compared to the dual-channel net inflow of $1.282 billion last week, this week's dual-channel supply inflow has decreased to $237 million, a significant reduction in inflow scale. Specifically, Bitcoin spot ETFs saw an outflow of $842 million, Ethereum spot ETFs experienced an outflow of $184 million, while stablecoins had an inflow of $1.264 billion.

Despite a decrease in the inflow of stablecoins and an increase in ETF outflows, existing funds entering the exchanges have transformed into buying pressure, supporting the price of Bitcoin to return to $83,000. Currently, there is a slight rebound in the existing funds in the exchanges, but this rebound may only be a buying behavior of a small amount of funds and is not enough to become a force to drive a full market reversal.

Market Participant Behavior Analysis

Data shows that short-term investors are continuing to cut losses, with the largest single-day loss occurring on March 13, though the scale is lower than that on March 10. Currently, short-term investors are averaging about 9% in losses, which includes a large number of ETF holders. In this round of decline, short-term investors are both the driving force behind the drop and the main bearers of the losses. They will continue to face pressure during the turbulent market ahead and may become a source of selling pressure for further declines.

After three weeks of decline, long-term holders have shifted from reducing their positions to increasing them, accumulating about 100,000 bitcoins. Another group worth noting is large investors, who have also increased their holdings by nearly 60,000 bitcoins, with a cost below $80,000. In the long term, these two groups are generally able to achieve stable returns while also playing a role in stabilizing the market.

Market Cycle Indicators

According to data from a certain analytics engine, the Bitcoin market cycle indicator is currently at 0.375, indicating that the market is in a rising continuation phase.