The crypto market's response to policy signals: from ETF to tariffs

The crypto market is undergoing unprecedented changes. Many seasoned practitioners lament that the market trends for 2024/2025 are difficult to predict, and even experienced investors find it hard to profit. Interestingly, the market seems to be going through an evolution: from the "community-driven" phase of 2017/2018, to the "technology-driven" phase of 2020/2021, and now to the "policy-driven" phase.

This article will focus on recent policy-driven events and explore the extent to which public policy information affects cryptocurrency prices. It is worth noting that people may develop a sense of numbness towards the continuously emerging signals, a phenomenon known in economics as diminishing marginal utility.

Since the approval of the ETF in 2024, in addition to traditional technical indicators, the daily net inflow/outflow data of the ETF has become an important metric of market attention. Taking Ethereum as an example, its price shows a clear positive correlation with ETF flows. The situation for Bitcoin is more complex, especially after a certain political figure may win the election in November, where this correlation has weakened.

Overall, the market's sensitivity to public information is gradually decreasing, but this does not mean that this information has completely lost its influence.

Recently, a certain political figure has frequently commented on tariff issues, including imposing tariffs on goods from Canada and Mexico, as well as additional tariffs on all foreign steel and aluminum products. These statements have had varying degrees of impact on the crypto market.

Data shows that the market reacted significantly to the previous tariff statements, but the subsequent reactions gradually weakened. Does this mean that the market has developed immunity to such statements? The answer is not that simple.

Combining ETF fund flow analysis, we found that as early as before March 1, large-scale fund outflows had already occurred in Bitcoin ETFs, possibly to avoid risk. This may explain why subsequent tariff statements had a reduced impact on the market – those concerned investors may have already exited.

In addition, the market reactions on March 4th and 7th were also influenced by other factors, such as changes in the Bank of Japan's policies and the holding of an important summit. This indicates that the market is not insensitive to policy signals, but is taking into account various factors.

Overall, the market may adapt to the continuous emergence of information, but this is not equivalent to complete numbness or desensitization. On the contrary, it may reflect the fine calculations and expectation management of market participants regarding risks. In the current complex policy environment, investors need to remain vigilant and comprehensively assess the potential impact of various policy signals on the market.