The U.S. economy faces high inflation challenges, and Hong Kong ushers in a new era of Bitcoin ETF.

Recently, inflation in the United States has intensified, but GDP growth has fallen short of expectations, raising concerns in the market about the U.S. economy potentially falling into "stagflation." Amid this atmosphere of worry, combined with the impact of geopolitical conflicts, capital markets have seen a correction this month. U.S. stocks and Japanese stocks have corrected significantly, while European markets have performed relatively well, indicating that global investors are not overly concerned about the so-called systemic risks in the global economy. Despite fluctuations in the crypto market, some unexpected events caused Bitcoin prices to briefly fall below $60,000, but on April 29, the crypto market witnessed a historic moment: Hong Kong approved the cryptocurrency ETF, signaling that incremental funds are still flowing in, and the market outlook is positive.

At the beginning of the year, driven by the Federal Reserve's interest rate cut expectations and the continued decline of the Consumer Price Index ( CPI ), the market ignored inflation concerns. However, subsequent inflation data continued to rise, and interest rate cut expectations were repeatedly downgraded. Currently, the market generally expects no interest rate cuts in May, and there are even a few views that suggest the possibility of further rate hikes.

According to current data, the United States seems to have entered a "stagflation" state—high inflation accompanied by low economic growth. The GDP growth in the first quarter was only 1.6% year-on-year, far below expectations; while the core PCE price index exceeded expectations with a growth of 3.7% in the first quarter, which has already excluded energy and food. In other words, even without considering the recent rise in international commodity prices, inflation in the United States remains serious.

At the beginning of the year, the U.S. economy showed a "high growth, low inflation" trend, and the "Goldilocks" economy became the mainstream narrative for global investors. In just a few months, the situation shifted from "all good" to a "stagflation crisis"; the focus for the U.S. going forward will be how to address the "inflation" issue. Currently, very few people in the market are even betting that interest rates will continue to rise, but the likelihood of further rate hikes is low. It's more likely that the timeline for rate cuts will be delayed, and the number and basis points of cuts will be reduced. Current U.S. inflation is influenced by multiple factors including upstream raw material prices, employment, and demand. With subsequent commodity prices tending to rationalize, labor market rebalancing, and the continuation of the downward trend in used car prices, core inflation in the U.S. is expected to decline.

Currently, the economic situation in the United States is exactly what the Federal Reserve hopes to see. There are various ways to unravel the "wage-inflation" spiral, and it is not necessary to choose to continue raising interest rates, which would have a significant impact on the economy. This month, the Japanese yen and Japanese stocks experienced a sharp decline. In this situation, international investors will sell yen and buy dollars, which also greatly helps to tighten dollar liquidity.

Currently, the overall stance of the Federal Reserve officials is dovish, and they have not released a clear signal for further interest rate hikes. This may indicate that the United States has certain policy tools to address the inflation issue. In short, at this stage, the U.S. economy does face the challenge of inflationary pressures, which has raised some concerns in the market, but investors need not panic excessively about the inflation issue.

Additionally, this month has seen a lot of geopolitical conflicts, which is also a factor leading to fluctuations in the capital markets. As it stands, all parties involved are maintaining relative restraint, and there are no signs of further escalation of conflicts. Moreover, in modern society, the likelihood of a large-scale war breaking out under the nuclear deterrence of major powers is extremely low; therefore, the impact of geopolitical issues on financial markets is often sudden but short-lived. Thus, the effects of war this month are merely a sudden variable.

After a strong rise in the U.S. stock market for five consecutive months, a significant adjustment has finally occurred—the Nasdaq index dropped to the 120-day moving average, and some tech stocks experienced substantial declines. The current trend in the U.S. stock market reflects more about the changes in interest rate cut expectations, with geopolitical conflicts being a secondary reason. The valuation of tech stocks is directly related to liquidity, and a delay in interest rate cut expectations will directly compress the valuation space of tech stocks.

In addition to the United States, the Japanese stock market has also experienced a significant pullback this month. The situation in Japan is mainly due to the recent sharp depreciation of the yen, which has led investors to sell Japanese assets. Moreover, the strong correlation between the yen and the dollar, along with the delayed expectations of interest rate cuts by the Federal Reserve, is also one of the important reasons for the recent fluctuations in the yen.

The poor performance of the stock markets in the U.S. and Japan has raised concerns that inflation issues in the U.S. could lead to a global financial crisis. However, it is still too early to draw such conclusions, as the stock markets in other countries have not shown significant corrections: stock indices in France and Germany remain strong; the Indian stock market is also fluctuating at high levels. This pullback in the U.S. stock market is likely just a reaction to changes in expectations and unforeseen events, without any obvious systemic risk.

This month, the cryptocurrency market has not performed well, with Bitcoin prices dropping below $60,000 at their lowest, and Ethereum prices falling below $2,800. Since Bitcoin reached a new high in mid-March, it has entered a correction phase, which has lasted for a month and a half. During this period, unexpected events such as geopolitical conflicts and disappointing U.S. economic data have further worsened the already lackluster cryptocurrency market, with the sharp decline in mid-April being triggered by the Middle East geopolitical conflict.

Currently, the cryptocurrency market has entered a state that is strongly correlated with the movements of traditional assets—Bitcoin prices have shown an astonishing correlation with certain tech stocks over the past year. This strong correlation is quite intriguing, and there is currently no widely accepted explanation.

If Bitcoin is indeed recognized by the market as "digital gold", then theoretically its price movement should be correlated with gold, and the trend corresponding to geopolitical conflicts should be a surge rather than a sharp decline. From the price trend of gold, it can be seen that gold reached a historical high during the days of the Middle East conflict, fully highlighting the safe-haven property of gold.

This situation may indicate one thing - the trend of Bitcoin is indeed currently tied to the ETFs of certain countries. Throughout April, the ETFs have shown a trend of net outflows.

The trend bound to a single national asset is actually not particularly reasonable. The most notable decentralized attribute of Bitcoin makes it a universally recognized value storage tool; no one has the authority to issue or destroy Bitcoin. This characteristic, which is different from fiat currency, has become a refreshing force in the era of credit money. However, currently, a single country's ETF has already acquired the pricing power of Bitcoin. Although it cannot create or destroy Bitcoin, it does represent a certain deviation from the decentralized attribute.

Fortunately, on April 29, Hong Kong officially approved 6 virtual asset spot ETFs, including 3 Bitcoin ETFs and 3 Ethereum ETFs. These ETF products vary in their fee structures, trading efficiencies, and issuance strategies, providing investors with diversified choices. Moreover, in terms of categories, they have already surpassed the United States, which has not yet approved an Ethereum spot ETF. Institutions predict that as market interest in these innovative ETFs grows, these six ETFs will bring an incremental $1 billion to the crypto market.

Recent news shows that Australia will also launch a Bitcoin ETF by the end of this year.

This multi-point flowering style of ETF listing is somewhat similar to the early mining farms and mining machines distributed around the world, which can fully maintain the decentralized property of Bitcoin in the secondary market—no single institution or country has the right to price Bitcoin independently.

Therefore, as more institutions in countries or regions list Bitcoin spot ETFs, the holdings of large holders will become increasingly decentralized. At that time, in the secondary market, the pricing power of Bitcoin will also show characteristics of decentralization, and it may return to the essential value of electronic gold.

Overall, the hawkish statements from the Federal Reserve in April and geopolitical conflicts in the Middle East have caused fluctuations in the capital markets, but the strategic stability among nuclear powers has provided a certain degree of assurance for the market. In terms of inflation suppression strategies, the Federal Reserve is actively addressing potential financial risks. Although there has been a pullback in the stock markets of the United States and Japan, the global capital markets have not yet shown widespread signs of a financial crisis.

At this critical moment, financial innovation efforts in Asia, especially in Hong Kong, are particularly important. The approval and upcoming listing of the Hong Kong Bitcoin ETF not only marks a significant advancement in the Asian financial market in the field of cryptocurrencies but may also become a new trigger point for the global capital market. This development not only provides investors with new asset allocation options but may also drive the cryptocurrency market towards a more mature and regulated direction, heralding the birth of new investment opportunities and market trends, while also promoting the "decentralization" of Bitcoin pricing power in the secondary market.