U.S.-China trade agreement finalized: the contrast between expectation and reality in the market
Local time this Monday, U.S. President Trump officially announced a phased trade agreement framework with China: not only suspending the previously proposed '100% tariffs on China', but also reducing the current 57% tariff rate on China to 47%, while confirming that the two countries will enter a one-year trade truce period. This news was regarded as a 'huge positive' by the cryptocurrency market—after all, the escalation of U.S.-China trade tensions on October 10 had triggered a $19 billion liquidation in cryptocurrency in a single day, and the market generally expects that easing trade tensions will alleviate the volatility pressure on risk assets.
But strangely, after the good news landed, the market showed a 'reversal' trend: Bitcoin once fell below $109,000 during the day, down over 8% from the previous trading day's closing price; Ethereum also dipped to $37,000, with a single-day decline of 7.2%, marking the largest single-day drop in nearly a month. More notably, this plunge was not without warning: As early as Sunday, U.S. Treasury Secretary Scott Bessent revealed that 'the two countries have reached an agreement on the trade framework,' leading to a brief rebound in the cryptocurrency market (Bitcoin once rose to $121,000), but when the agreement was officially announced on Monday, the rebound quickly came to a halt, and a large amount of profit-taking occurred.
The triple core logic behind the plunge
1. Good news is digested in advance: The market law of 'buying expectations, selling facts'
The benefits of this trade agreement have long been priced in by the market,” said Checkmate, a senior analyst at cryptocurrency analysis firm Glassnode, in an interview. Since Bessent first signaled 'progress in negotiations' in late October, Bitcoin has rebounded from $98,000 to $120,000, a cumulative increase of over 22%. 'When the agreement comes into effect, there is a lack of new incremental benefits — there are no tariff reductions beyond expectations, nor breakthroughs in key areas such as technology trade and market access, leading to profit-taking by funds.'
In fact, the cryptocurrency market's reaction to 'Sino-U.S. trade news' has always been 'short-term.' Reviewing the progress of multiple trade negotiations in 2023, Bitcoin often rises in the short term due to 'risk appetite recovery' when news is released initially, but whether it can sustain ultimately depends on the substantive content of the agreement. This agreement only focuses on tariff adjustments and setting a truce period, failing to resolve the core contradictions of long-term trade frictions, becoming a key inducement for the market's 'good news fully priced in.'
2. Federal Reserve policy 'throws cold water': Rate cut expectations cool, suppressing risk assets
Compared to the Sino-U.S. trade agreement, the remarks made by Federal Reserve Chairman Jerome Powell after the FOMC meeting had a more direct impact on the cryptocurrency market. Powell clearly stated: 'Current inflation levels remain above the 2% target, the labor market is still tight, and the possibility of a rate cut in December is far from certain. The Federal Reserve will maintain a restrictive monetary policy stance until inflation continues to decline.'
This statement directly shattered the market's expectation of 'another 25 basis point cut by year-end.' Previously, the CME FedWatch tool showed that traders had a probability of 73% for a December rate cut, but after Powell's speech, that probability plummeted to 41%. Cryptocurrencies, as typical high-risk assets, are extremely sensitive to liquidity conditions — when the market realizes that the Federal Reserve may maintain high interest rates longer, expectations for tightened dollar liquidity increase, and funds shift from cryptocurrencies to low-risk assets such as cash and short-term government bonds, directly leading to pressure on Bitcoin and Ethereum buying.
3. Weak demand in the U.S. market: ETF fund outflows and the disappearance of spot premiums
In addition to macro factors, the slowdown in domestic demand for cryptocurrencies in the U.S. has become the 'final straw that broke the camel's back':
ETF fund inflows peaked and then retreated: Data shows that the U.S. spot Bitcoin ETF has exhibited net selling for seven consecutive trading days, with a seven-day average net outflow of 281 Bitcoins (approximately $30.7 million at current prices), the lowest level since the ETF boom started in April; Ethereum ETF inflows have nearly stagnated since mid-August, with a cumulative net inflow of only $120 million from August to October, down significantly from the monthly average of $350 million in the first half of the year, highlighting low investor confidence.
Spot market buying pressure has weakened: Data from major U.S. exchanges like Coinbase and Kraken show that the spot premiums for Bitcoin and Ethereum have fallen to 0%, with some periods even showing slight negative premiums. Historical data indicates that during cryptocurrency bull markets, U.S. spot exchanges often maintain a positive premium of 1%-3% (reflecting strong domestic buying demand), while the current zero premium means that 'domestic buying pressure is unable to absorb selling pressure.'
Cautious sentiment in the derivatives market is rising: The futures basis (the difference between spot prices and futures prices) continues to narrow, with the three-month Bitcoin futures basis dropping from 2.3% at the beginning of the month to 0.8%, indicating that investors are unwilling to pay a premium for long-term contracts and prefer 'short-term profit-taking' rather than long-term holding.
Market outlook: Concerns about a bear market are intensifying, but it's not yet the 'panic moment.'
Despite the recent plunge raising concerns about a return to a bear market, most analysts believe that the current market is still in a 'macro-driven fluctuation period' rather than a trend decline. Cryptocurrency research firm Arcane Research pointed out: 'The Sino-U.S. trade truce will still alleviate fluctuations in global risk assets, while the uncertainty of Federal Reserve policies is the core variable — if subsequent inflation data declines and rate cut expectations resume, cryptocurrencies are likely to return to an upward channel; however, if demand remains weak, Bitcoin may test the key support level of $100,000.'
It is worth noting that, apart from the U.S. market, buying pressure in Asian markets has not shown significant signs of easing. Data shows that spot exchanges in regions such as Japan and Singapore still maintain a slight positive premium, which may become a 'potential force' supporting cryptocurrency prices. However, in the short term, the market is likely to maintain a volatile adjustment until macro policy signals and fund flows show a clear reversal.
