GuShiio.com The geopolitical game among major powers has intensified, DeepSeek Open Source Week has reshaped the AI track competition landscape, and China’s risk assets have entered a revaluation stage and resonated liquidity migration.
Author:@Web3_Mario
abstract: In recent days, the cryptocurrency market has experienced a wave of major corrections. Consultations in the market are very chaotic. Coupled with the negative impact of huge hacking attacks in the currency circle, it has made it difficult to understand the recent market trend in the short term.
The author has some opinions on this and hopes to share and discuss them with you. I think there are two main reasons for the current retracement in the cryptocurrency market:
First, from a micro perspective, successive hacking incidents have aroused concerns about traditional funds and heightened risk aversion.
Second, from a macro perspective, DeepSeek Open Source Week further poked the U.S. AI bubble and combined with the actual direction of the Trump administration’s policy advancement. On the one hand, it triggered market concerns about stagflation in the United States, and on the other hand, it triggered a revaluation of risk assets in China.
Micro level: The continuous huge financial losses have caused traditional funds to worry about the short-term trend of cryptocurrencies, and risk aversion has intensified
I believe everyone still remembers the Bybit theft incident last week and the recent Infini theft incident. There have been many related discussions, so I won’t go into it here. Let’s talk a little here about the impact of stolen funds on these two companies and the impact on the industry. First of all, for Bybit, although the amount of US$1.5 billion is roughly equivalent to its net profit for about one year in terms of scale, this is definitely not a small amount for a company in the expansion stage. Under normal circumstances, it is enough for companies to maintain cash reserves for three months to one year. Considering that the exchange business is a high-cash flow industry, its cash reserves are likely to be closer to the left level. Then let’s take a look at Coinbase’s 2024 financial report. Some preliminary judgments can be roughly drawn. In 2024, Coinbase’s full-year revenue more than doubled from last year to US$6.564 billion, and net income was US$2.6 billion. In terms of expenses, total operating expenses in 2024 were US$4.3 billion.
So referring to the data disclosed by Coinbase, combined with Bybit’s current expansion stage, spending control will be more aggressive. It is more appropriate to estimate Bybit’s cash flow reserves to be basically US$70 to US$1 billion. Then the 1.5 billion yuan user fund loss is obviously impossible to advance with own funds alone. At this time, methods such as fund borrowing, equity financing or shareholder capital injection are needed to survive this crisis. However, no matter which model, considering the hidden worry of weak growth in the cryptocurrency market in 2025, the resulting capital cost may be considerable, and it will obviously bring a certain burden to future corporate expansion.
Of course, I saw the news today that the core vulnerability of the attack lies in Safe rather than Bybit itself, so there may be some incentive to recover some losses. However, a very important factor plaguing the encryption industry is the imperfect legal framework, so the relevant litigation process must be lengthy and costly. It may not be easy to recover losses. As for Infini, it is clear that a loss of US$50 million is unsustainable for start-ups, but it seems that the founder is strong and it is indeed difficult to rely on capital injection to tide over the difficulties.
These two consecutive large losses seem to be commonplace to currency circle traders who are accustomed to high risks, but they have obviously shaken the trust of traditional funds. Specifically, it can be seen from the capital flow situation of BTC ETFs that the attack on the 21st has obviously triggered a large outflow of funds, which means that the impact of the incident on traditional investors may be negative. If the concerns raised focus on whether it will hinder the formulation of a regulatory friendly legal framework, then the matter is of great importance. Therefore, it can be said that the theft incident was the trigger for this round of correction on a micro scale.
Macro level: The geopolitical game among major powers intensifies, DeepSeek Open Source Week reshapes the AI track competition landscape, and the liquidity migration as China’s risk assets enter the revaluation stage resonance
So let’s take a look at some of the impacts at the macro level, and the conclusion is obviously unfavorable to the crypto market in the short term. In fact, after a period of observation, the Trump administration’s policy direction has become relatively clear, that is, through strategic contraction, exchanging space for time, completing internal integration and industrial restructuring, the United States can gain the ability to re-industrialize, because technology and production capacity are the most core factors in the game between great powers. The most crucial factor in achieving this goal is money, which is mainly reflected in the financial situation of the United States, financing ability and the real purchasing power of the US dollar. The relationship between these three points is complementary, so it is not so easy to observe changes in relevant processes, but after taking a long look, we can still sort out some core concerns:
1. The US fiscal deficit problem;
2. The risk of stagflation in the United States;
3. The strength and weakness of the US dollar;
Let’s first point first, the U.S. fiscal deficit problem. This problem has been analyzed a lot in previous articles. Simply put, the core cause of this round of U.S. fiscal deficit problem can be traced back to the Biden administration’s extraordinary economic stimulus bill in response to the COVID-19 epidemic, and the Treasury Department represented by Yellen adjusted the U.S. bond issuance structure and caused interest rates to invert by overissuing short bonds, thereby harvesting wealth on a global scale. The specific reason is that over-issuing of short-term bonds will depress the price of short-term U.S. bonds on the supply side, thereby increasing the yield of short-term U.S. bonds. The increase in short-term U.S. bond yields will naturally attract the U.S. dollar to return to the United States, because it can enjoy without losing time costs. This is also the reason why capital choices represented by Buffett sold a large amount of risky assets and increased cash reserves in the previous cycle. This will put great pressure on the exchange rates of other sovereign countries in the short term. In order to avoid excessive exchange rate depreciation, central banks of various countries have to sell short debts at a loss on the basis of discounts, turning floating losses into real losses in exchange for dollar liquidity and stable exchange rates. Generally speaking, this is a global harvesting strategy, especially for some emerging countries and countries with trade surpluses. However, there is also a problem in doing so, that is, the debt structure of the United States will increase its debt repayment pressure in the short term, because short debts need to be repaid with interest when they mature. This is the origin of the debt crisis caused by this round of U.S. fiscal deficit. It can also be said that it is a disaster left by the Democratic Party to Trump.
The biggest impact of the debt crisis is that it affects U.S. credit, thereby reducing its financing ability. In other words, the U.S. government needs to pay higher interest rates before it can raise funds through national debt, which generally raises the neutral interest rate of American society. This interest rate cannot be controlled by the Federal Reserve’s monetary policy, and the elevated neutral interest rate will put huge pressure on business operations and cause stagnation of economic growth. The stagnation of economic growth will be transmitted to ordinary people through the job market, which in turn will lead to a contraction in investment and consumption. This is a negative feedback closed loop that triggers economic recession.
The focus of observation on this main line focuses on how the Trump administration can reshape the fiscal discipline of the U.S. government and solve the fiscal deficit problem. The specific policies involved are the DOGE Efficiency Department led by Musk, the process of reducing U.S. government spending and abolishing redundant staff, and the impact on the economy during the process. At present, Trump’s current round of internal integration is very strong, and the reform has entered deep water. I will not track progress here, but I will only introduce some of my own observation logic.
1. Paying attention to the radicalization of the Ministry of Efficiency’s policies, such as excessive abolishment and reduction, will inevitably lead to short-term concerns about the economic outlook, which is usually detrimental to risky assets.
2. Pay attention to the feedback from macro indicators on their policies, such as employment data and GDP data.
3. Pay attention to the progress of tax reduction policies.
We cannot underestimate the impact of government spending and government employees on the U.S. economy. Normally, we think that China’s proportion of government spending must be higher than that of the United States, but in fact this is a wrong impression. The share of government expenditure in the United States is 17.2% of GDP, while that in China is 16.51%. Government expenditure is usually transmitted to the entire economic system through multiple industrial chain multiples. The structural differences between the two sides mainly reflect the high proportion of consumption in the United States ‘GPD, while China’s GDP has a higher proportion of imports and exports. This represents two different ideas to boost the economy. For the United States, expanding external demand and increasing exports is a means to boost the economy. For China, domestic demand still has great potential to be tapped.
The same is true for consumption. In this figure we can see that the salary level of government departments is not low across the entire industry chain, and reducing government redundancy has also hit U.S. economic growth on the consumer side. Therefore, overly aggressive policy advancement will definitely trigger fears of economic recession. In some things, things will be smooth if they are delayed, but they must also be coordinated with the pace of the Trump administration’s overall policy advancement. As for the advancement of tax cuts, it seems that Trump’s focus is not here yet, so the potential concern of revenue reduction in the short term does not seem obvious, but we must also remain vigilant.
Secondly, there is concerns about stagflation in the United States. The so-called stagflation refers to the fact that economic growth stagnates while inflation intensifies, which is socially unacceptable in terms of pain index. In addition to the impact of government spending cuts on economic growth just mentioned, the stagflation problem also has some important concerns:
1. How DeepSeek will further impact the AI track.
2. The advancement of U.S. sovereign funds.
3. The impact of tariff policies and geopolitical conflicts on inflation.
Among them, the author believes that the most significant impact in the short term is the first point. Small partners interested in technology may know that many results in DeepSeek’s Open Source Week are extremely shocking, but they all point to one point that AI’s demand for computing power has been greatly reduced. This allowed the stock market to remain stable during the past interest rate hike cycles in the United States because of the huge narrative of the AI track and the United States ‘monopoly on the upstream and downstream of the AI track. The market has given extremely high valuations to related stocks in the U.S. AI sector, and is naturally optimistic about the new round of AI-driven economic growth in the United States. However, all this will be reversed by DeepSeek, and DeepSeek’s biggest impact lies in two aspects. On the one hand, it lies on the cost side, which greatly reduces the requirements for computing power, which has led to a significant pullback in the performance growth potential of upstream computing power providers represented by Nvidia. The second aspect is to break the U.S. monopoly on AI downstream algorithms through open source means, thereby suppressing the valuation of algorithm providers represented by OpenAI. Moreover, this impact has just begun, and it will depend on how U.S. AI will respond at that time. However, in the short term, it has already shown that the valuation of U.S. AI stocks has pulled back and the valuation of China technology stocks has returned.
In fact, for a long time, the United States has suppressed the valuations of China companies through public opinion suppression, which in fact put them in an underestimation state. Benefiting from DeepSeek’s grand narrative for the upgrading of China’s manufacturing industry and the relatively soft attitude of Trump’s policies on China issues, geopolitical risks have been reduced, and the valuations of Chinese and American companies have returned. According to the report of CICC, this round of pull-up mainly benefits from southbound funds from Hong Kong stocks. That is, the influx of capital from the mainland side and the influx of overseas passive capital. Overseas active funds, subject to Trump’s investment restrictions on China companies, have not seen significant changes. However, liquidity observation is also very important. After all, there are many means to circumvent direct investment and enjoy the dividends of this wave of return of valuation of China companies, such as investing in highly correlated stock markets such as Singapore. Changes in capital flows are relatively easy to identify from the exchange rate of the Hong Kong dollar. We know that the Hong Kong dollar and the US dollar are a joint exchange rate system, that is, the exchange rate of the Hong Kong dollar against the US dollar will stabilize before 7.75 to 7.85. Therefore, when the Hong Kong dollar approaches 7.75, it means that foreign investors are more willing to invest in Hong Kong stocks.
The second point worth paying attention to is the construction of sovereign wealth funds in the United States. We know that sovereign wealth funds are a good supplement to the government’s financial resources for any sovereign country, especially countries with a large trade surplus with large amounts of dollars. Among the top ten sovereign wealth funds in the world, there are 3 in China, 4 in the Middle East, and 2 in Singapore. Ranked first is the Norway Government Global Pension Fund, with a total asset size of approximately US$1.55 trillion. Affected by the constitutional framework of the U.S. federal government, it is actually more difficult for the United States to establish a sovereign wealth fund, because the federal government can only receive direct taxes and has relatively limited financial resources. The United States is currently experiencing the dilemma of fiscal deficits. However, Trump seems to have instructed the Ministry of Finance to establish a trillion-dollar sovereign wealth fund, which is naturally also a means to alleviate fiscal deficits. However, the question here is where the money comes from and what to invest?
At present, according to the new U.S. Treasury Secretary Basent, it seems that he hopes to reprice U.S. gold reserves to provide US$750 billion in liquidity to sovereign funds. The reason behind this is that according to Section 5117 of Book 31 of the U.S. Code, the U.S. government’s current legal value of 8,133 metric tons of gold is still US$42.22/ounce. If calculated based on the current market price of US$2,920/ounce, The U.S. government has $750 billion in unrealized returns. Therefore, additional liquidity can be obtained by amending the law, which has to be said to be a clever approach. However, if it is passed, the US dollars used for investment or relief of debt pressure will inevitably be exchanged for selling gold, so it will inevitably have an impact on the trend of gold.
As for what to invest, I think that there is a high probability that it will still be carried out around the purpose of returning production capacity to the United States, so the impact on Bitcoin may be limited. In previous articles, I have analyzed the value of Bitcoin relative to the United States in the short and medium term. It is a target for the economy to underpin, based on the fact that the United States has sufficient pricing power on this asset. But in the short term, the economy has not experienced a significant recession, so this is not the main axis of Trump’s policy, but an important tool to tide over the painful period of reform.
Finally, in terms of tariffs, tariff concerns have actually been well changed. At present, tariff policy is more a bargaining chip for Trump’s negotiations than a necessary choice. This is based on the proportion of tariffs levied on China. It can be seen that Trump is still relatively restrained, which naturally takes into account the impact of high tariffs on internal inflation. In the next step, the author is more interested in tariffs on Europe and what rewards the United States can exchange for them. Of course, the author is worried about the process of the EU’s rebuilding its independence. Reaping Europe to restore its own strength is the first step for the United States to participate in this great power game. As for inflation risks, although the CPI has been growing for several consecutive months, considering that the overall situation is still at a controllable level and the easing of Trump’s tariff policy, the risks do not seem to be large at present.
Finally, let’s talk about the trend of the U.S. dollar. This is a very critical issue that requires continuous observation. In fact, the debate about the strength of the U.S. dollar under Trump’s new term is ongoing. The speeches of some key figures here have significantly affected the market. For example, Stephen Milan, Trump’s newly appointed economic adviser and now chief of the White House economic think tank, said that the United States needs a weak U.S. dollar to boost exports and promote internal reindustrialization. After causing panic to the market, U.S. Treasury Secretary Basent stepped forward to reassure the market during an interview on February 7, saying that the United States would continue to strengthen the U.S. dollar policy, but that the RMB was a bit too undervalued.
In fact, this is a very interesting thing. Let’s take a look at the impact of a strong and weak dollar on the United States. First of all, a strong dollar will have two main impacts, first on asset prices. As the US dollar appreciates, dollar-denominated assets will perform better. For the US government, it will mainly benefit US bonds, US stocks of global companies, etc., which will increase the market’s enthusiasm to purchase US bonds. Secondly, in terms of industry, the purchasing power of the US dollar has become stronger, which is beneficial to reducing costs for global US companies, but it has suppressed the competitiveness of domestic industrial products in the international market and is not conducive to internal industrialization. The impact of a weak dollar is the opposite. Considering that Trump’s overall policy concept is based on increasing production capacity through industrial return, thereby enhancing competitiveness in the game between major powers. Then it seems that the weak dollar policy is the right solution. But there is a problem here. A weak dollar will lead to the depreciation of dollar-denominated assets. Considering the current fragility of the U.S. economy and financing pressure, an excessively fast weak dollar policy will prevent the United States from being able to survive the painful period caused by reforms.
Here is a representative event to illustrate this pressure. In Buffett’s annual shareholder letter on February 25, he pointed out dissatisfaction with the U.S. fiscal deficit problem, which obviously exacerbated market concerns. We know that Buffett’s capital allocation strategy for a long time recently has been to choose to clear out overvalued risky assets in the United States in exchange for more cash reserves to allocate short-term U.S. treasury bonds, and at the same time, it is also allocated by some of Japan’s top five trading companies. However, this is obviously also a means of interest rate spread arbitrage. There is no need to discuss it here. What I want to say is that Buffett’s views have a strong influence on the market. Naturally, there will be a unified concern about the overallocation of capital by the US dollar, which is the real purchasing power of the US dollar. That is, concerns about the depreciation of the dollar. Therefore, the pressure borne by entering the depreciation channel too quickly is very great.
However, no matter how we exchange space for time and slowly convert debt, it will become the choice of China and the United States, and the trend of the US dollar will likely emerge from a pattern of strong first and weak then. Explain that changes in dollar-denominated assets will also vary with the cycle. Cryptocurrency is also one of the assets affected by this wave.
Finally, I would like to talk about my views on the cryptocurrency market. I think there are too many uncertainties in the current market, so individual investors can choose dumbbell strategies to enhance the anti-fragility of their investment portfolios. On the one hand, blue-chip cryptocurrencies are allocated or participating in some lower-risk DeFi gains, on the other hand, small positions are allocated with some highly volatile targets on dips. As for the short-term trend of the market, the superposition of many unfavorable factors has indeed led to certain price pressure, but it seems that no clear structural risks have been seen. Therefore, if the market retracts excessively due to panic, it is also an option to properly open a position.
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