After the market fluctuation stabilizes, follow the global monetary policy trends.

After a week of tariff friction, the market welcomed a brief respite over the weekend. However, whether this calm can be sustained remains uncertain. The tariff issue, as a sudden event, has triggered capital flight and emotional fluctuations, leading to severe market volatility.

Once the market digests the fundamental changes brought about by tariffs and the release of risk aversion sentiment, the financial markets are expected to find a new equilibrium. This also explains why global stock markets, especially U.S. stocks, closed higher last Friday. From the changes in the volatility index of the S&P 500, we can clearly see this trend.

Last week, the VIX index reached a recent high, with its Fluctuation comparable to the financial turmoil caused by the pandemic in 2020. This is also the main reason for such a significant Fluctuation in the market over the past week.

As the huge Fluctuation comes to a pause, the focus affecting the cryptocurrency market trends has returned to the old topics of inflation and interest rate cuts. After all, only interest rate cuts can bring about large-scale capital inflows, injecting growth momentum into risk assets led by Bitcoin.

By comparing the global broad money supply (M2) over the past 10 years with the trends of Bitcoin, we can clearly see the strong correlation between the two. The significant increase in Bitcoin over the past 10 years is built upon the explosive growth of global M2, and this correlation far exceeds that of other financial indicators.

This also explains why Bitcoin always experiences fluctuations whenever data related to inflation or interest rate cuts is released, as this data ultimately affects whether new funds can flow into the cryptocurrency space.

However, current participants in the cryptocurrency market seem to be overly focused on the Federal Reserve's interest rate cut path, while neglecting another important indicator worth following — the central bank's asset size. This indicator reflects the current liquidity situation of domestic currency.

In fact, the scale of central bank assets is closely related to the fluctuations of Bitcoin. Historical data shows that this correlation has almost run through every major rise of Bitcoin, and it highly corresponds with the four-year cycle pattern.

The liquidity of the central bank played an important role in the cryptocurrency bull market of 2020-2021, the bear market of 2022, the recovery from the cyclical low point from late 2022 to early 2023, the surge in the fourth quarter of 2023, and the correction from the second to third quarter of 2024.

It is worth noting that the central bank's asset scale began to decline after September 2024 and bottomed out at the end of 2024, currently rising to a high point in the past year. From the perspective of data correlation, changes in central bank liquidity usually precede significant fluctuations in the Bitcoin and cryptocurrency markets.

Interestingly, during the Bitcoin bull market in 2017, the Federal Reserve was not the party "injecting liquidity"; instead, it raised interest rates three times throughout the year and implemented quantitative tightening. However, risk assets led by Bitcoin still performed quite optimistically in 2017, mainly due to the central bank's asset size reaching a new high that year.

Even from the perspective of the S&P 500's increase, there is a certain correlation with the central bank's liquidity. Historical data shows that the correlation coefficient between the total assets of the central bank and the annual S&P 500 is approximately 0.32 (based on data from 2015-2024).

Of course, to some extent, this is also because the central bank's quarterly monetary policy report overlaps with the Federal Reserve's interest rate meeting schedule, which amplifies the correlation in the short term.

In summary, we not only need to closely follow the direction of the United States' monetary policy, but we also need to pay attention to changes in domestic financial data. Recently, there have been reports stating that "monetary policy tools such as reserve requirement ratio cuts and interest rate cuts have sufficient room for adjustment and can be implemented at any time"; we need to continuously track this change.

It is worth mentioning that, in terms of asset scale, by January 2025, the total deposits in our country amount to 42.3 trillion USD, while the total deposits in the United States are approximately 17.93 trillion USD. From the perspective of deposit scale, our country has more financial possibilities. If liquidity improves, it may welcome new opportunities.

Of course, another issue that needs to be explored is whether, even with improved liquidity, funds can flow into the cryptocurrency market, as there are still some restrictions. However, Hong Kong has already given positive signals; in terms of policy looseness and convenience, it is different from a few years ago.

Finally, let me summarize this week's market commentary with an ancient saying: "It's easy to sail with the wind, but difficult to row against the current." In the market, seizing opportunities is more important than going against the trend. What we need to do, besides patiently waiting, is to be brave in seizing the opportunities when they arise and embrace new challenges.