The U.S. economy faces high inflation challenges, while Asia welcomes a new era of Bitcoin ETF.

Recent economic data from the United States shows that inflationary pressures are intensifying, but economic growth is falling short of expectations, raising market concerns about "stagflation." Against this backdrop, coupled with the impact of geopolitical conflicts, the capital markets have experienced a correction this month. U.S. and Japanese stocks have performed weakly, while European markets have remained relatively stable, indicating that global investors are not overly worried about systemic risks. Despite the volatility in the cryptocurrency market, Bitcoin briefly fell below $60,000, but April 29 marked a milestone for the crypto market: Hong Kong approved the cryptocurrency ETF, demonstrating a continuous inflow of incremental funds and a positive market outlook.

At the beginning of the year, driven by the Federal Reserve's expectations of interest rate cuts and a continuous decline in CPI, market concerns about inflation eased somewhat. However, subsequent inflation data continued to rise, and expectations for rate cuts were continuously adjusted downward. Currently, the market still expects that there will be no rate cuts in May, and a few viewpoints even suggest that rates may continue to rise.

Latest data shows that the United States seems to be falling into a "stagflation" state. The GDP growth in the first quarter was only 1.6% year-on-year, far below expectations; while the core PCE price index grew by 3.7% in the first quarter, exceeding expectations. Even excluding energy and food factors, inflation in the United States remains serious.

In just a few months, the economic situation in the United States has shifted from an ideal state of "high growth and low inflation" to a "stagflation crisis." The focus for the U.S. going forward will be how to address the inflation issue. Although there are a few opinions in the market suggesting that interest rates may continue to rise, the likelihood of further rate hikes is low. It is more likely that the timeline for rate cuts will be postponed, and the number and magnitude of cuts will be reduced. In the future, as commodity prices stabilize, the labor market rebalances, and used car prices decline, the core inflation in the U.S. is expected to ease.

Currently, the overall attitude of Federal Reserve officials is dovish, and they have not clearly indicated a need for further interest rate hikes. This may suggest that the United States has other policy tools to address the inflation issue. In short, while the U.S. economy does face inflationary pressures that have raised some concerns in the market, investors need not panic excessively.

This month, frequent geopolitical conflicts have also been one of the factors leading to fluctuations in the capital market. Currently, it seems that both Iran and Israel are maintaining relative restraint, with no signs of further escalation of the conflict. In modern society, the possibility of large-scale wars breaking out under the nuclear deterrence of great powers is extremely low, so the impact of geopolitical issues on financial markets is often temporary. Even in the conflict between Russia and Ukraine, the Russian stock market has nearly recovered all the losses incurred since the war began. Therefore, the impact of war this month is merely a sudden variable.

After five consecutive months of gains in the U.S. stock market, a significant correction has finally occurred. The Nasdaq index touched the 120-day moving average at its lowest point, with Nvidia experiencing a drop of 10% on April 19. The current trend in the U.S. stock market mainly reflects changes in interest rate cut expectations, while geopolitical conflicts are a secondary reason. The valuation of tech stocks is directly related to liquidity, and a delay in interest rate cut expectations will compress the valuation space for tech stocks.

Apart from the United States, the Japanese stock market has also seen a significant pullback this month, mainly due to the sharp depreciation of the yen, leading investors to sell Japanese assets. In addition, the strong correlation between the yen and the dollar, as well as the delayed expectations for a rate cut by the Federal Reserve, are also important reasons for the recent fluctuations in the yen.

Despite the poor performance of the US and Japanese stock markets, there has been no significant pullback in other countries' stock markets: France's CAC40 and Germany's DAX remain strong; India's Bombay Sensex30 also continues to fluctuate above 70,000 points. This pullback in the US stock market is likely just a reaction to changes in expectations and unexpected events, with no apparent systemic risk.

The cryptocurrency market has performed poorly this month, with Bitcoin's price briefly dropping below $60,000 and Ethereum's price hitting a low of below $2,800. Since Bitcoin reached a new high in mid-March, the market has entered a correction period that has lasted for a month and a half. During this time, black swan events such as geopolitical conflicts and U.S. economic data falling short of expectations have further impacted the cryptocurrency market.

Currently, the crypto market shows a strong correlation with traditional asset trends, and the correlation between Bitcoin prices and Nvidia stock prices has been particularly evident over the past year. This strong correlation is thought-provoking, and there is currently no widely accepted explanation.

If Bitcoin is consensually regarded as "digital gold," theoretically its movement should be correlated with gold. However, during the conflict between Iran and Israel, gold prices hit an all-time high, fully demonstrating its safe-haven attributes, while Bitcoin experienced a decline. This may indicate that Bitcoin's movement is currently dominated by the U.S. ETF. Throughout April, the ETF showed a trend of net outflow.

The trend tied to a single country's assets is not entirely reasonable. The most striking decentralized attribute of Bitcoin makes it a widely recognized store of value, with no one having the authority to issue or destroy Bitcoin. However, the current single-country ETFs have pricing power over Bitcoin, which deviates to some extent from its decentralized nature.

Fortunately, after the United States, Hong Kong officially approved 6 virtual asset spot ETFs on April 29, including 3 Bitcoin ETFs and 3 Ethereum ETFs. These ETF products have distinct features in terms of fee structure, trading efficiency, and issuance strategy, providing investors with a diverse range of choices, and they are currently ahead of the United States in terms of categories, as the U.S. has yet to approve an Ethereum spot ETF. Institutions predict that these six ETFs could bring an incremental $1 billion into the crypto market.

Latest news shows that Australia also plans to launch a Bitcoin ETF by the end of this year. This multi-faceted ETF listing helps maintain the decentralized nature of Bitcoin in the secondary market, avoiding the monopoly of Bitcoin pricing power by a single institution or country.

As more countries or regional institutions list Bitcoin spot ETFs, the holdings of large players will become more decentralized. At that time, the pricing power of Bitcoin in the secondary market will also show characteristics of decentralization, potentially returning to the intrinsic value of electronic gold.

Overall, the hawkish stance of the Federal Reserve in April and the geopolitical conflicts in the Middle East have brought volatility to the capital markets, but the strategic stability among nuclear powers provides some assurance to the market. In terms of inflation suppression strategies, the Federal Reserve is actively addressing potential financial risks. Although there has been a correction in the U.S. and Japanese stock markets, the global capital markets have not yet shown widespread signs of a financial crisis.

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