Analysis of the Reasons for the Crypto Market Pullback: Trump's Actions Trigger Risk Aversion Sentiment

Last week, the cryptocurrency market experienced a significant pullback. While the market generally attributed this to Federal Reserve Chairman Powell's so-called "hawkish rate cut" remarks, a deeper analysis reveals that this may only be a secondary factor. The main reason that likely triggered capital panic is the uncertainty brought about by Trump, who pressured Congress on a short-term spending bill alongside Musk last Wednesday, even threatening to abolish the debt ceiling rules, which ignited a flight to safety among investors.

Powell's remarks have limited impact, macro data shows no obvious risks

The FOMC interest rate decision early last Thursday met market expectations, with a rate cut of 25 basis points. The market's attribution of the decline in risk assets is mainly focused on two points: first, the dot plot shows a lack of consensus among the committee members, and second, the median target interest rate for 2025 has been raised. However, from the changes in the U.S. Treasury yield curve, although long-term rates have increased, there has been little impact on the 1-year yield, indicating that the market has some concerns about the long-term economic outlook, but the risks in the short term are not apparent.

The prices of the 30-day federal funds futures contract expiring on December 25 indicate that the market's expectations for two future rate cuts had already been reflected as early as November. Therefore, the pullback seems to be mainly attributed to the risks associated with the Federal Reserve's future interest rate decisions, which appear to lack sufficient basis.

Observing macro data such as the PCE index, non-farm employment and unemployment rate, as well as GDP growth details, the US PCE index has not shown a significant increase recently, the employment market is performing strongly, and GDP growth is stabilizing. These data do not support the judgment of inflation reigniting or economic recession in the coming year.

The continuous decline of the Dow Jones Index is mainly influenced by the significant downward revision of a single high-weight stock, UnitedHealth Group ( UNH ), rather than systemic risk. The sharp drop in UNH's stock price is primarily due to the social reflection triggered by the CEO's murder incident, resonating with Trump's healthcare reform policy direction.

Trump Threatens to Cancel Debt Ceiling, Raising Market Concerns

Last Wednesday, Trump joined forces with Musk to pressure Congress on the short-term spending bill, even threatening to eliminate the debt ceiling rule, which triggered significant uncertainty in the market. Although a new temporary spending bill was ultimately passed, avoiding a partial government shutdown, Trump's expressed stance on abolishing the debt ceiling clearly raised concerns in the market.

The U.S. debt ceiling is the maximum legal limit on the amount of money that the federal government can borrow. Currently, the ratio of U.S. public debt to GDP has reached a historic high of over 120%. If the debt ceiling is abolished at this time, it means that the U.S. will not be constrained by fiscal discipline for a long period, and the impact on the dollar's credit system is difficult to estimate.

Trump may hope to eliminate the debt ceiling and, while implementing tax cuts and reducing public debt policies, rely on continued borrowing to get through the fiscal crisis in the short term. This move affects the crypto market, primarily undermining the narrative of using Bitcoin reserves to resolve the U.S. debt crisis.

In the coming period, observing the governance of Trump's team will become a focal point for the market, and its importance may surpass other factors. Investors need to continuously pay attention to related developments to assess potential risks and opportunities.