Crypto Assets Market Pullback Analysis: Trump Policies Create Uncertainty

Last week, the Crypto Assets market experienced a significant pullback. Although the market generally attributes this to Federal Reserve Chairman Powell's "hawkish rate cut" remarks, in reality, this may only be a secondary factor. The real trigger for the flight to safety was Trump's strong pressure on Congress regarding the short-term spending bill, in conjunction with Musk, last Wednesday, as well as the uncertainty brought about by the threat to eliminate the debt ceiling rules.

The Federal Reserve's decision is not the main reason

The FOMC interest rate decision early last Thursday met market expectations, with a rate cut of 25 basis points. The market's interpretation of the decline in risk assets is mainly based on two points: first, the decision was not unanimous, and second, the median target interest rate for 2025 was raised. However, a close analysis of Powell's statements reveals that his concerns about inflation risks stem more from the uncertainty of Trump's policies rather than changes in macro indicators. At the same time, he still shows sufficient confidence in the future economic outlook.

From the changes in the U.S. Treasury yield curve, long-term rates have indeed risen, but the impact on the 1-year yield is minimal. This indicates that the market has concerns about the long-term economic outlook, but the risks are not expected to materialize in the short term. The prices of the 30-day Federal Funds futures contracts maturing in December 2025 show that the market's expectations for two future rate cuts had already been reflected as early as November. Therefore, attributing the pullback mainly to the perceived risks of the Federal Reserve's future interest rate decisions seems to lack sufficient basis.

Macroeconomic data remains relatively stable

From the macro data such as the PCE index, non-farm employment and unemployment rate, as well as GDP growth, there are no obvious signs of deterioration in the US economy. The PCE index remains below 2.5, the unemployment rate has not significantly increased, and the non-farm employment data for November has shown growth compared to previous periods. GDP growth also tends to stabilize, with no significant declines in various sub-items. These data do not support the judgment of a resurgence of inflation or an economic recession in the coming year.

The continuous decline of the Dow Jones Index is mainly attributed to the single-point risk of UnitedHealth Group, rather than systemic risk. UnitedHealth Group has a high weight in the Dow, and the incident involving its CEO's murder triggered a significant drop in stock price, dragging down the overall index performance.

Trump's Pressure Triggers Market Concerns

The main reason for the market's violent reaction lies in Trump's strong pressure on Congress's short-term spending plan in conjunction with Musk last Wednesday, as well as the uncertainty triggered by the threat to abolish the debt ceiling rules. Although a new temporary spending bill was ultimately passed, avoiding a partial government shutdown, Trump's expressed attitude towards abolishing the debt ceiling clearly raised concerns in the market.

Given Trump's influence within the Republican Party and the fact that the newly elected representatives will be sworn in on January 3, the possibility of abolishing the debt ceiling has greatly increased. Currently, the ratio of U.S. public debt to GDP has reached a historic high, exceeding 120%. If the debt ceiling is abolished at this time, it means that the United States will not be bound by fiscal discipline for a long period, and the impact on the dollar credit system is difficult to estimate.

Trump's move may be aimed at navigating the short-term risk of a debt crisis. While tax cuts can boost economic vitality, they will lead to a decline in government revenue in the short term. Abolishing the shackles of the debt ceiling allows the government to continue borrowing to get through the financial crisis.

Impact on the Crypto Assets Market

Trump's movements have an impact on Crypto Assets, mainly striking at the narrative of using Bitcoin reserves to solve the debt crisis. If Trump directly addresses the issue by abolishing the debt ceiling rule, it indirectly undermines the value of that narrative. Given that the current Crypto Assets market is in a phase of seeking new value support, this change also logically triggers profit-taking and risk aversion.

Therefore, in the coming period, the focus on the governance direction of the Trump team will clearly take precedence over other factors. Market participants need to continuously pay close attention to the relevant policy trends and their potential impacts.