Market Reaction to Policy Changes: Can Continuous Signals Lead to Apathy?

The cryptocurrency market has been unpredictable recently, and many seasoned investors lament the difficulty in grasping it. Some believe that 2024-2025 will be a "policy-driven market," where the market direction largely depends on policy changes.

This article mainly discusses the impact of recent policy-related public information on cryptocurrency prices. Before the analysis, there is an important assumption: people will gradually become desensitized to the continuously emerging signals. This is similar to the theory of diminishing marginal utility in economics.

Since the approval of the Bitcoin ETF in 2024, in addition to traditional technical indicators, the daily net inflow/outflow data of ETFs has become an important reference for market attention. Taking Ethereum as an example, its price shows a positive correlation with the flow of ETF funds. In contrast, the correlation for Bitcoin is less obvious, especially after a certain candidate is expected to win in November, when this correlation further weakens.

Overall, the market's sensitivity to public information will gradually decrease, but this does not mean that this information completely loses its effectiveness.

Recently, a certain political figure has made multiple statements regarding tariff policies. Starting from early February, he has successively announced plans to impose tariffs on goods from countries such as Canada and Mexico, and in subsequent speeches, he has continuously expanded the scope of the tariffs.

By observing the price changes of Bitcoin and Ethereum at these several points in time, it can be found that the market reaction exhibits certain patterns: the fluctuations caused by the first and third tariff statements were larger, while the impacts of the subsequent statements gradually weakened. By the last statement, the market even saw a slight increase. Does this mean that the market has developed an "immunity" to such statements?

Combining the analysis of ETF fund flows, we found that before early March, there had already been a large-scale outflow of funds from Bitcoin ETFs, which may be due to some investors exiting to avoid risk. Therefore, the subsequent market's reaction to tariff news may have weakened because sensitive investors have already withdrawn.

In addition, the market reactions on March 4 and 7 were also influenced by other factors. For example, the Bank of Japan's interest rate hike decision on March 4 may have amplified market volatility. Although there were new tariff statements on March 7, the Bitcoin summit and news related to strategic reserves held on the same day may have mitigated some of the negative impacts.

In summary, the market does develop a certain degree of "habituation" to continuously emerging information, but the impact of the tariff issue has not yet completely dissipated. The calm response of the market on March 11 is more likely due to risk-averse funds having exited, and the traders remaining in the market have already factored the tariff risk into the prices.

The market is never truly numb; every reaction is a careful calculation of risk. Investors should remain vigilant regarding policy statements, but at the same time, they should also integrate more dimensions of market information for comprehensive judgment.