Crypto market——a utopia invaded by macroeconomics

Crypto Assets will once again become a part of the macro economy, no longer independent of the traditional market's Fluctuation.

Written by: Musol

Introduction: I still remember when Bitcoin first gained popularity; it was an exhilarating era where everyone in the circle spoke of the "decentralization revolution," as if holding the key to the future. But how is it now? Open any crypto community, and the screen is filled with "What is the Fed's interest rate hike forecast?" and "How did the CPI data exceed expectations?"

How did the crypto market we once yearned for fall from a technological utopia to become a echo of the macroeconomy?

A class of assets that claims to want to disrupt the old world now seems like a spineless follower, constantly watching Powell's mouth to make a living, truly sad and laughable.

Pt.1. Where Does the Macroeconomic Color of the Crypto Market Come From?

We all know that the crypto market, as an emerging force in the financial sector, is closely linked to changes in macroeconomic policies. Against the backdrop of global economic integration, even minor shifts in macroeconomic policies can cause significant upheaval in the crypto market. Bitcoin, as the leader of the crypto market, is often seen as a barometer of market trends, and its fluctuations are closely related to adjustments in macroeconomic policies. The Federal Reserve's monetary policies, the fiscal policies of various governments, and changes in the international political landscape all influence the flow of funds, market sentiment, and market expectations to varying degrees.

2023 - 2024: Federal Reserve Interest Rate Cuts and Market Fluctuation

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Using Bitcoin's halving cycle as a time reference, the Fed's rate cut cycle was originally expected to start in Q4 '23. However, the Biden administration has resorted to a series of unconventional measures in order to maintain the economy's semblance of prosperity. By liberalizing the employment of illegal immigrants, the supply of the labor market has been increased, making the employment data look more impressive; At the same time, the size of government employees has been expanded, further distorting the non-farm payrolls data. These measures made the Fed stubbornly resist not cutting interest rates in Q4'23, trying to create the illusion of stable economic growth.

However, the U.S. Treasury Department, in order to raise funds for Biden's Keynesian policies, needs to issue a large amount of U.S. debt. This has led to a sharp decline in the yield of 10-year U.S. Treasuries. This change has brought unexpected opportunities to the crypto market, creating a seasonal bull market spanning Q4 of 2023 and Q1 of 2024. During this period, the activity level of funds in the crypto market has significantly increased, and the prices of mainstream cryptocurrencies like Bitcoin have also risen accordingly. Investors have flocked to the market, hoping to get a share in this bull market.

Entering Q24, the market situation reversed. As the pace of bond issuance by the Ministry of Finance has slowed down, the supply of market funds has decreased. At the same time, the outbreak of systemic risks in non-US countries around the world, such as the instability of the Todai housing market and the turmoil in the Japanese bond market, has caused investors' safe-haven demand to rise sharply. In this context, the US dollar, US Treasury bonds and gold have become the most sought-after items in the eyes of investors, with a large amount of money flowing out of the crypto market in search of a safer haven. Coupled with the historical tradition of risky markets in Q2, the entire crypto market entered a period of depression, with prices falling, trading volumes shrinking, and investor confidence taking a serious hit.

2024 - 2025: Election Situation, Interest Rate Cuts, and Market Contradictions

By Q3 '24, in order to save the Biden/Harris election, the Fed had to start the process of cutting interest rates. However, there is a strange phenomenon in the market, where the yield on the 10-year Treasury note has not only not fallen in tandem with the rate cut, but has risen strongly in the opposite direction, with nominal interest rates being lowered while real interest rates are approaching record highs. This anomaly complicates the dynamics of the crypto market. The market in Q4 '24 was not driven by external hot money, but by the "Trump deal" and the autumn restlessness. Since Trump's election as president of the United States, market sentiment has been greatly mobilized, and various Trump-related concept coins have emerged one after another. And when Trump issued the meme coin of the same name, it emptied the on-chain liquidity, making the market tight and the price volatility intensified.

When the time came to Q1 of 25, the main contradiction of the market had undergone a fundamental shift. It is no longer a contradiction between data such as non-farm payrolls and CPI and the Fed's expectation management, but a contradiction between the White House, the Department of Government Efficiency and the Fed. The impact of this contradiction is extremely severe, and DeepSeek's puncture of US AI hegemony has raised concerns about US tech power and economic prospects. This panic led to a large number of investors selling US Treasuries, and US Treasuries suffered a wave of rapid selling. However, the fall in real interest rates, caused by panic, did not contribute to the spring market as usual, but instead prompted massive capital outflows. Investors are frightened by the uncertainty in the market and have withdrawn their funds in search of safer investment channels.

Whether now or in the future, we are both witnesses and forecasters, the crypto market is no longer an isolated asset class. They are once again deeply intertwined with macroeconomic forces and regulatory changes to form a new chessboard. In the future, what will dominate the crypto assets market will be regulation and macroeconomics, rather than the microeconomics or industry development within the sector.

Pt.2. Why do Crypto Assets markets react to tariffs?

Panic and Risk Aversion Caused by the Trade War

"The fears of a trade war triggered by tariffs usually dissipate quickly, but in the meantime, investors hedge through gold, government bonds, and the US dollar."

The threat of a global trade war has driven investors to flee risk assets. Traditional financial investors view Bitcoin as a high-risk asset and are turning to safer assets such as gold, bonds, and the US dollar. A typical risk-averse trade is unfolding, and Crypto Assets are naturally categorized as such.

Inflation and interest rates have become the focus again

Tariffs have increased the cost of imported goods, which may lead to rising inflation. If inflation remains high, the Federal Reserve may delay or cancel the expected interest rate cuts, thereby reducing liquidity in the financial markets. Since Bitcoin does not generate returns, higher interest rates make it less attractive compared to U.S. Treasury bonds and even cash deposits.

This dynamic contrasts sharply with the low-interest rate, liquidity-driven environment of 2020-2021, when Crypto Assets flourished. Therefore, macro trends have once again become the main driving factors affecting the performance of Crypto Assets.

The Role of Regulation and Traditional Finance

Although tariffs and inflation dominate the short-term outlook, regulatory changes are equally crucial. Global regulators are tightening their scrutiny of the market, and the SEC and CFTC (Commodity Futures Trading Commission) have recently taken several measures that are beneficial to the industry, which more or less hints at the regulatory stance in the United States. At the same time, traditional financial institutions are accelerating their adoption of Crypto Assets and are gradually recognizing its potential as a diversified asset class.

"The market is not afraid of extreme tariff measures, but is adapting to Trump's negotiation strategy."

This means that while there is more volatility in the short term, long-term investors may continue to accumulate Bitcoin and other cryptocurrencies when prices fall.

Pt.3. About the Future

Crypto Assets will once again become a part of the macro economy, no longer independent of the fluctuations of traditional markets. Economic policies, central bank decisions, and geopolitical events directly affect the performance of digital assets.

As inflation, interest rates, and trade policies dominate the dynamics of the financial markets, digital assets are no longer detached from the broader economic environment. Institutional funds now see major Crypto Assets as part of the traditional financial realm, meaning that regulatory changes and global economic trends will shape the trajectory of Crypto Assets.

In the next 3-6 months, the market is expected to continue facing fluctuations as it digests tariff updates, Federal Reserve policy decisions, and upcoming regulatory measures. The question is not whether Crypto Assets will decouple from the macroeconomy, but how it will respond to this new reality. What truly matters right now includes macro events and what Trump has said regarding regulation. The market is reacting violently to trade policies, interest rate expectations, and regulatory decisions, and these factors may shape the development trajectory of the entire industry in the coming months.

Pt.4. Some Thoughts

The root cause of the fall of our ideal technological utopia is essentially the invasion of capital. In the early days, the crypto market was a niche utopia, populated by tech enthusiasts and libertarians, with a painfully small amount of funding, and the outside world showed no interest. At that time, Bitcoin was still an island, relying on the community's fervent self-rotation. But ever since its market value broke a trillion, Wall Street vultures caught the scent of blood. Institutional funds surged in like a tide, ETF applications sprang up like mushrooms after rain, and hedge funds rushed in with leverage, transforming this small pond into a hunting ground for capital.

What are the results?

As soon as the Fed waved its hand, the little dignity left in the market was useless. In the 2022 interest rate hike cycle, Bitcoin fell from 60,000 to 20,000, just like a man who was pulled out of his back, and the entire currency circle was bleeding. As soon as the expectation of a rate cut in 2023 raised its head, prices began to pick up again, and retail investors cheered, as if they had forgotten that they were just pawns on the chessboard. What about "free money"? It is clear that he is a slave who has been chained by the global financial system, and his every move depends on the face of his master. **

What’s even more infuriating is that the crypto market reacts particularly "despicably" to macro signals. When the U.S. stock market drops by 5%, it can drop by 15%, like a frightened rabbit running around everywhere; when the Federal Reserve gives a dovish hint, altcoins double in a day, just like gamblers who have been pumped up with adrenaline.

This "magnifying glass effect" exposes its essence: a market that has not matured, fundamentally a plaything of emotional trading. High liquidity sensitivity is one reason — funds move in and out quickly, leverage is played aggressively, and any slight disturbance can cause an explosion.

But the deeper issue is that it has no roots at all. Without a technological narrative and independent value, all that remains is the greed and fear of speculators.

Looking at those KOLs, shouting trades on X every day, retail investors follow suit and run faster than anyone else, but what is the result?

After the institutions have harvested a wave of retail investors, the small investors are still licking their wounds and shouting "belief."

This is not a magnifying glass; it is clearly a funhouse mirror for speculators, reflecting the ugliest side of human nature clearly.

Some people still naively argue: this shows that encryption has been accepted by the mainstream and has become part of the asset class, how great is that!

Is it funny or not?

This "acceptance" is nothing but the taming of capital, and encryption has turned from a rebel into an accomplice of the system. Even if we endure the cold winter and find our own rhythm in the future, it is nothing more than a pipe dream. As long as the Federal Reserve's monetary policy remains the baton of the global economy, the encryption market can only continue to serve as a magnifying glass, magnifying panic, magnifying greed, but unable to magnify the ideals of its early days.

He is no longer that boy who made your heart flutter, but a loser beaten down by reality, left searching for his teeth on the ground.