Author: @Web3_Mario

Abstract: The cryptocurrency market experienced a large retracement last week. The market generally attributed it to the so-called "hawkish interest rate cut" by Federal Reserve Chairman Powell, which triggered the risk market's concerns about inflation and economic recession. However, according to the author According to analysis, this is probably only a minor factor causing capital panic. The real impact lies in the uncertainty caused by Trump and Musk's strong pressure on Congress' short-term spending bill launched last Wednesday, and even threatened to cancel the debt ceiling rules. , triggering the risk aversion of funds.

Powell may be lying, as macro data is not enough to trigger market panic about currency risks

The FOMC interest rate decision in the early hours of last Thursday was in line with market expectations, ending with a 25BP reduction , the market generally attributes the decline in risk markets to two aspects. First, the dot chart shows that there is no unanimous consensus among the seats. Among them, Cleveland Fed President Hammack is inclined to keep interest rates unchanged. In addition, the 25-year median target interest rate was raised to 3.75% to 4.00%. Compared with the previous median target interest rate of 3.25% to 3.5% in the dot plot in September, interest rate cut expectations were lowered from 4 to 2 times. To add a little introduction here, the so-called Dot Plot refers to a chart tool used by the Federal Reserve to express monetary policy makers’ expectations for the future path of interest rates. It is part of the Summary of Economic Projections (SEP) released at the Federal Open Market Committee (FOMC) meeting. It is usually released four times a year and is mainly used to observe the consensus within the Federal Reserve.

In addition to the subsequent Q&A session with reporters, some of Powell’s speeches were criticized by the market Interpreted as hawkish guidance, it mainly includes two aspects: first, it seems to show concern about the outlook for inflation in the next year. In addition, Powell did not give a positive response to the establishment of Bitcoin reserves and the Fed’s attitude, but read the full text Later, I felt that Powell's concerns about inflation risks did not come from changes in certain macro indicators, but more from the uncertainty with Trump. At the same time, his outlook on future economic prospects also revealed sufficient confidence.

Then let’s take a look at why we say this. First, let’s look at the changes in the U.S. Treasury yield curve before and after the Federal Reserve’s resolution and related content were made public. You can see Far-end interest rates are indeed rising, but the impact on the 1-year yield is not great, which shows that the market is indeed optimistic about the forward economic outlook.There are more worries about the situation, but at least the risks are not short-term.

You can see the price of the 30-day federal funds futures contract expiring in December 2025 In fact, the market has already reacted in advance to the prospect of two interest rate cuts in the future as early as November. Therefore, it seems insufficient to attribute the correction mainly to the risks of the Fed's future interest rate decisions. One more thing to add here is that the implied interest rate is calculated by subtracting the current futures price from 100.

Next, let’s look at several sets of macro data, PCE index, non-agricultural and Looking at the unemployment rate and GDP growth details, it can be seen that the U.S. PCE index has not risen significantly at least in the past period. Both the PCE year-on-year and core PCE year-on-year growth rates have remained below 2.5. At the same time, the expected inflation rate of the University of Michigan is has also remained stable, and the unemployment rate has not increased significantly. At the same time, Non-farm payrolls also increased in November compared to before, which also shows that the job market has also shown a strong side. Taking into account Trump's tax cuts and subsequent tax cuts, GDP growth has also stabilized in the end and has not reached a certain level. There has been a clear decline in detail. Therefore, from the perspective of macro data, there is no data to support the judgment of a resurgence of inflation or an economic recession in the next year. This also shows that Powell’s concerns still come from Trump’s uncertain effects.

To explain one more point here, the Dow Jones Index has set a record for continuous declines. Some friends believe that this reflects the market's pessimism about the future development prospects of the U.S. industry. However, after further research, it seems that the main reason for this impact is not systemic risk, but mainly comes from the substantial downward revision of United Health Insurance. First of all, the Dow Jones Industrial Average (DJIA) is a price-weighted index, which means that the impact of the price of each component stock on the index depends on the absolute value of its stock price, not its market capitalization. This means that high-priced targets will have a higher weight in the Dow. As of November 2, 2024, United Health Insurance has the highest weight in the Dow, accounting for 8.88%, and in the latest Among the weights of individual stocks, the weight of UNH has dropped to 7.08%, and the stock price has dropped from 613 on December 4 to the current 500, a drop of as much as 18%, while other high-weight heavy stocks did not see such a decline, so the Dow's declineThe main reason comes from the single-point risk of the highly weighted stock UNH, rather than the systemic risk. So what happened to UNH? The main reason is that UNH CEO Brian Thompson and December 5th, at the Hilton Hotel in Manhattan, New York He was shot several times by a gunman outside and died after being sent to the hospital. The gunman’s name was Luigi Mangione and he had a good social background. The interrogation process showed that his behavior came more from UNH’s exploitation of Americans in terms of medical insurance, which aroused widespread social sympathy for him. , detonating the long-standing contradiction in expensive medical costs in the United States, which is also in line with Trump’s medical insurance reform direction, so the resonance of the two triggered a sharp drop in stock prices, which will not be introduced here.

Of course, regarding the Bitcoin reserve episode, the author believes that Powell’s attitude is actually not very important. As he himself said, the decision on whether to advance this proposal lies with the members of Congress, not the Federal Reserve. At the same time, we refer to the establishment and management framework of the U.S. oil and gold reserves. The management of the former belongs to the U.S. Department of Energy, and the latter belongs to the Department of the Treasury. Of course, the management process will involve the cooperation of other departments, such as SEC, CFTC and other regulations, as well as the FED influence. However, in this process, these departments play more of a collaborative role.

So why did the market react so violently? The author believes that the main reason is that Trump and Musk launched a short-term spending bill on Congress last Wednesday. The uncertainty caused by strong pressure and even threats to lift debt ceiling rules triggered a risk aversion in funds.

Trump and his powerful allies threaten to permanently lift the debt ceiling, casting a shadow over the traditional U.S. dollar credit system, and the market begins to trade in risk aversion

I don’t know how many friends are paying attention As for the game about short-term spending in the U.S. Congress last week, last Tuesday, December 17, House Speaker Mike Johnson reached a short-term agreement with the Democrats on spending, which will extend funding until March next year to avoid close the door. At the same time, in order to pass the bill, Johnson also made some concessions to the Democrats and attached several bills with bipartisan support. However, on December 18, Musk began to crazily attack the proposal in X, believing that the proposal seriously violated the rights of taxpayers, leading to the proposal being quickly rejected.

At the same time, the entire process also gained support from Trump, who claimed in True Social that Congress needs to repeal the ridiculous debt ceiling rules before Trump officially takes office on January 20 , because he believed that these debt problems were caused by Biden Democrats and should be solved by him. Since then, Republicans have quickly amended the new spending bill, not only deleting some compromise spending, but also adding proposals to repeal or suspend the debt ceiling, but The proposal passed the House of Representatives on Thursday (December 19) by 174 It failed to pass the House of Representatives with 235 votes in favor and against, which also raised the risk of a shutdown. Of course, it was only on December 20 that the House of Representatives finally passed a new temporary spending bill, just shy of the deadline. Within hours, a proposed change to the debt ceiling was removed from the proposal, although the new spending bill was passed, averting it. The department is partially shut down, but the author believes that Trump’s attitude towards the abolition of the debt ceiling has clearly aroused market concerns. We know that Trump’s power is the largest among all previous U.S. presidents, especially in the House of Representatives. It has also gained absolute say, and the new House of Representatives will be sworn in and officially take office on January 3. By then, the possibility of abolishing the debt ceiling will be greatly increased, so we will analyze the impact of this. < /p>

The U.S. debt ceiling (Debt Ceiling) refers to the maximum legal limit that the U.S. federal government can borrow. It was first established in 1917. This limit was set by Congress to limit the growth of debt. The purpose of the debt ceiling's existence is to prevent over-borrowing, but it is not actually an effective means of controlling debt levels; The upper limit of legal borrowing. In addition to establishing fiscal discipline, the debt limit is also an important weapon in the game between the two parties. Often the opposition party will gain more bargaining chips by criticizing the risk of shutdown caused by the ruling party's spending bill.

Of course, the U.S. debt ceiling has been suspended many times, usually in the form of legislation, with bills passed by Congress to suspend the application of the debt ceiling. Suspending the debt ceiling means suspending the debt ceiling. You can continue to borrow without being subject to a set limit until the deadline specified in the bill or the debt reaches a certain new level. A typical case is as follows:

2011-2013: In 2011, the United States faced a serious debt ceiling crisis. At that time, Congress and President Obama engaged in intense negotiations on how to raise the debt ceiling, eventually reaching an agreement to temporarily raise the debt ceiling and taking measures. some budget cutsmeasure. In addition, in order to avoid default, in October 2013, the US Congress passed a bill that suspended the debt ceiling and allowed borrowing until February 2014. At that time, the debt level of the United States was close to the ceiling, and suspending the debt ceiling avoided the risk of default.

2017-2019: In 2017, the U.S. Congress once again passed a bill to suspend the debt ceiling and allow continued borrowing until March 2019. The bill also includes other fiscal matters and is linked to budget and expenditure agreements. The pause allowed the United States to avoid a possible default.

2019-2021: In August 2019, the U.S. Congress passed the "Two-Year Budget Agreement", which not only increased the spending cap, but also suspended The debt ceiling has been raised, allowing the economy to borrow more money until July 31, 2021. This pause allowed the Bank to continue borrowing without being subject to the debt ceiling, thereby ensuring the Bank's normal operations and avoiding a shutdown and debt default.

2021: In December 2021, in order to avoid the United States defaulting, Congress passed the Debt Ceiling Temporary Adjustment Act, raising the debt ceiling to US$28.9 trillion, and Borrowing is allowed until 2023. The adjustment was made at the last minute before the October 2021 maturity, avoiding the risk of a debt default.

It can be seen that each suspension of the debt ceiling is in response to certain special events, such as the financial crisis in 2008 and the epidemic in 2021. But why raising the debt ceiling again at this time will have such an impact? The core lies in the current debt scale of the United States. The ratio of public debt to GDP in the United States has reached a historical high, exceeding 120%. If the debt ceiling is abolished at this time, this will This means that the United States will not be subject to any fiscal discipline for a long period of time in the future, and the impact this will have on the U.S. dollar credit system is actually unpredictable.

So why does Trump need to do this? The reason is very simple. In order to survive Regarding the risk of debt crisis in the short term, we already know that tax cuts and reducing public debt are the two most important goals of Trump's administration. However, although tax cuts can increase economic vitality, they will inevitably cause a reduction in income in the short term. , of course the resulting fiscal gap may be made up by increasing tariffs, but considering that manufacturing countries canLower the exchange rate to respond. This is why the U.S. dollar index has remained strong during the recent interest rate cut cycle. The core is that countries are preparing for possible trade wars. At the same time, the possible decline in earnings of local companies caused by cuts in fiscal spending also casts a shadow over the potential for economic growth. Therefore, in order to survive the painful period of implementation, Trump certainly hopes to solve this problem once and for all. Therefore, it is very appropriate to abolish the shackles of the debt ceiling and continue to borrow money to survive the fiscal crisis in the short term.

Finally, let’s look at why it affects cryptocurrencies. I think the core lies in A blow to the Bitcoin reserve narrative. We know that in the recent core narrative of cryptocurrency, the United States’ solution to the debt crisis problem by establishing Bitcoin reserves is a relatively important part of it. However, if Trump directly abolishes the debt ceiling rules, it will be equivalent to an indirect blow to this narrative. Value, in the previous analysis, we have dropped to the stage where cryptocurrency is currently looking for new value support, and the profit-taking and hedging caused by this is easy to understand. Therefore, I think that in the next period of time, the priority of observing the Trump team's governance will be significantly higher than other factors, and it requires continued attention.