‘The Federal Reserve stabilizes market confidence, most investors are waiting for the uncertainty to resolve in April’
Last week, the FOMC once again released positive signals. The FED will gradually reduce the pace of balance sheet contraction starting April 1, especially lowering the monthly limit for reinvesting U.S. Treasuries maturing at $25 billion to $5 billion, while maintaining MBS. Overall, the pace of balance sheet reduction has decreased by $20 billion (equivalent to releasing $20 billion in liquidity), which also suggests that the balance sheet reduction is about to end. As shown in Figure 1, TGA accounts continue to release liquidity, while ONRRP has slightly rebounded, with overall net liquidity performance increasing, which is acceptable.
After the start of the April tax season, it is expected that TGA will slightly absorb liquidity, while the FED will release liquidity to offset the liquidity pressure faced during the tax season. Looking ahead to Q2, I remain optimistic. The key focus will be on the implementation of reciprocal tariffs in early April and the Q1 earnings season for U.S. stocks. Personally, I believe the worst phase has passed, as mentioned last week, the bearish market has already been overconsumed!
Additionally, it is worth mentioning that last week's retail sales and industrial output data have shown that the performance of the U.S. economy is recovering from the lows of January and February. The mismatch between actual economic conditions and expectations will be the fuel for the upcoming rally. Market inflation expectations have only a short-term upward expectation, but do not support the narrative of stagflation in the long run (see Figure 2). As Powell mentioned: 'There will be no inflation story to tell five years from now.'
Traditional finance believes that#defi its importance will become irreplaceable in 6 years, DeFi will be the foundation for the next evolution of traditional finance. From past history, we can glean some insights: after 1971, the implementation of electronic trading and the subsequent internet brought faster trades, better transparency, and lower costs. For example, the settlement period has decreased from T+5 in 1993 to T+1 in 2024, which are all advantages of DeFi. In April, the U.S. House Financial Services Committee will vote on the stablecoin bill, and after stablecoins, it will be the glorious moment for DeFi, with more and more assets being tokenized (fiat currency, bonds, etc. RWA). Who needs financial services? It's quite obvious. Since Tether became one of the top ten buyers of U.S. debt (as shown in Figure 3), the U.S. is bound to facilitate the golden age of cryptocurrency.
Returning to the recent market, the BTC funding rate and open interest have started to rise slightly (as shown in Figure 4), indicating that market confidence is beginning to recover, but we still need more positive signals to bring large funds back in. Additionally, it's worth noting that since the beginning of 2025, the sectors with the most VC investment are AI, L1, and development tools, with a significant proportion being early-stage investments, indicating that there will be many opportunities in these sectors going forward (see Figure 5).
Finally, attached is the BTC vs LMI chart. Currently, BTC cleverly stays in sync with LMI and is approaching the next LMI turning point (on the 25th), which aligns with my view. I believe that by early April, the market will confirm the bottom and slowly start to rise...
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