Trump implemented stricter tariff policies against many other countries, which led to a 20% pullback in the U.S. stock market, at which point the VIX index was around 55. The price of Bitcoin also declined, briefly falling to $74,000; however, compared to expectations based on historical price trends, Bitcoin's performance has shown greater resilience.
In the near future, the market generally expects that the Federal Reserve will implement interest rate cuts before June, followed by a rebound in the U.S. stock market and the cryptocurrency market. In fact, Trump has recently made clear his request for interest rate cuts to Federal Reserve Chairman Powell. This article will delve into the reasons for Trump's insistence on cutting rates and the basis for optimism regarding the cryptocurrency market.
In the coming months, two major issues compel the Federal Reserve to consider significant interest rate cuts. First, this year, U.S. Treasury bonds are facing a maturity wall of up to $9 trillion (i.e., the Maturity Wall, referring to the overall maturity schedule of the bond market). This situation has led the Trump administration to seek interest rate cuts by all means, as cuts could save trillions of dollars in refinancing costs. However, from the Federal Reserve's perspective, the current level of inflation limits the possibility of rapid interest rate cuts. Therefore, the most reasonable explanation for a series of seemingly irrational radical policies and measures by the Trump administration (such as tariff policies and the establishment of DOGE, etc.) is that they constitute a collaborative mechanism attempting to leverage macroeconomic uncertainty to compel the Federal Reserve to make a rate-cut decision. Otherwise, after extending U.S. Treasury bonds, the government would have to pay at least 3 to 4 times the interest. In fact, from market performance, the yields on two-year short-term Treasury bonds have been continuously declining, which fully reflects the heightened risk-averse sentiment in the market, with funds flowing significantly into the Treasury market.
In the eyes of the Trump administration, the urgency of interest rate cuts can be explained by the following figure:
In fact, the surge in the Bank of America Merrill Lynch Option Volatility Estimate (MOVE) index further confirms the possibility of the Federal Reserve cutting interest rates. The MOVE index measures the interest rate volatility in the U.S. Treasury market and is an important indicator of the yield spread between long-term and short-term Treasury bonds. Once this index rises, all participants involved in financing transactions with U.S. Treasury or corporate bonds will be forced to sell bonds due to increased margin requirements.
If the MOVE index continues to rise, especially if it breaks through the critical value of 140, it often indicates that the market is in a state of extreme instability. Given that the Treasury and corporate bond markets are crucial for the smooth operation of the financial system, the Federal Reserve is likely to implement interest rate cuts to stabilize the market in such circumstances. It is worth noting that the last time the MOVE index surged above 140 was due to the collapse of Silicon Valley Bank, which was the largest bank failure since 2008.
In the coming months, it is necessary for the Federal Reserve to cut interest rates significantly, and the second reason also stems from the 'maturity wall', but this time it involves U.S. commercial real estate (CRE) loans maturing this year, totaling over $500 billion.
During the pandemic, many CRE loans were underwritten at lower interest rates, and now, in a continuously rising interest rate environment, these loans face severe refinancing challenges, which could lead to a significant increase in default rates, especially for those real estate projects with excessive leverage. Moreover, with the increasing popularity of remote work, structural changes have occurred in the commercial real estate sector, and the vacancy rate has remained high post-pandemic. In fact, if CRE loans experience large-scale defaults, it could potentially trigger a sharp rise in the MOVE index.
In the fourth quarter of 2024, the delinquency rate on CRE loans reached 1.57%, significantly up from 1.17% in the fourth quarter of 2023. Historical data shows that when interest rates exceed 1.5%, it raises many concerns, especially in the context of monetary tightening. At the same time, the office market faces a grim situation, with a vacancy rate as high as 20%, a continuously rising capitalization rate (around 7-8%), and a concentration of maturing loans, all of which have led to a 31% drop in office property values compared to their peak, and the default risk has also risen accordingly.
The logic behind this is as follows: A high vacancy rate will lead to a decrease in net operating income (NOI), a lower debt service coverage ratio (DSCR), and a reduced debt yield, while simultaneously increasing the capitalization rate. A high-interest rate environment will exacerbate this situation, especially for loans maturing in 2025, as refinancing at higher rates is likely to exceed the company's capacity to bear. Therefore, if commercial real estate loans cannot be refinanced at reasonable low rates like during the pandemic, banks will inevitably accumulate more bad debts. This could trigger a 'domino effect', resulting in more bank failures (recall the severe impact of bank failures like Silicon Valley Bank during the interest rate surge in 2023).
In light of the two urgent issues brought about by the current high interest rates, the Trump administration has had to take radical measures to strive for a quick interest rate cut. Otherwise, these debts will have to be extended, resulting in the U.S. government bearing higher refinancing costs, and many commercial real estate loans may not be extendable, leading to a large number of bad debts.
The most critical factor affecting the cryptocurrency market is market liquidity. The two main aspects that impact liquidity the most are monetary policy and the level of adoption of stablecoins. With the aid of a dovish (i.e., moderately accommodative) monetary policy, the widespread adoption of stablecoins can further accelerate capital inflow during a bull market. The extent of the bull market's rise largely depends on the growth of the total supply of stablecoins. Looking back at the previous bull market (2019 to 2022), the total supply of stablecoins rose from a low point to a peak, achieving a tenfold increase; however, from 2023 to early 2025, the growth rate is only about 100%, as shown in the figure below.
Next, we focus on a series of events that indicate the stablecoin adoption rate will rapidly increase in the coming year:
So, why is the Trump administration so actively promoting the development of stablecoins?
The circulating stablecoins are primarily backed by short-term U.S. Treasury bonds. Therefore, as the U.S. government extends trillions of dollars in maturing Treasury bonds this year, the higher the degree of stablecoin adoption, the greater the demand for short-term Treasury bonds.
From the market's perspective, in the short term, the market may experience a period of turbulence, with significantly increased volatility, and it is even possible that it may decline further from the current level. However, from a medium-term viewpoint, under the backdrop of dovish monetary policy, a significant interest rate cut is expected, coupled with the widespread adoption of stablecoins; the combination of these two factors is likely to give rise to another strong bull market, the scale of which is expected to be comparable to the previous bull market cycle.
It is expected that the Federal Reserve will cut interest rates before June, followed by a rebound in the U.S. stock market and cryptocurrency market.
