Tariffs, Crypto Volatility, and Global Economic Pressures

US Economic Struggles and Crypto Volatility Shake Markets

Weak US private sector data, tariff fatigue, and rising bond yields signal a tough week ahead. The US tech sector is feeling the heat, with the Nasdaq down 4% week-to-date, while the Dow and S&P 500 have fallen 3.1% and 3.8%, respectively. Since its December 2024 peak, the Nasdaq has plunged 10%, with the post-Trump rally fading fast. Meanwhile, crypto markets are also reeling from broader economic concerns. However, the US Federal Strategic Reserve announcement sparked wild swings, sending Bitcoin soaring to $95,000 on Monday before quickly losing momentum below $92,000. Despite the turbulence, crypto seems to be decoupling from equities. All eyes are now on Friday’s US non-farm payroll data and the White House crypto summit to shape the next market move.

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Crypto Market Reactions to Strategic Reserve Announcement

Trump’s announcement of a US Crypto Strategic Reserve caused a 20% surge in crypto prices, but by Tuesday, prices had reverted to previous levels. Coins like Cardano (ADA), XRP (Ripple), Trump’s memecoin, and Solana (SOL) saw significant gains. More details on the Bitcoin Reserve Strategy are expected at Friday’s White House Crypto Summit.

Solana’s co-founder, Yakovenko, raised concerns, warning that such reserves could undermine decentralization. He also suggested a state-level reserve could better protect against potential US federal policy failures.

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Crypto Derivatives & Market Sentiment

Market sentiment is cautiously neutral to slightly bullish. While implied volatility is lower, institutional positioning hints at possible market-moving events.

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BTC & ETH Volatility Trends

ETH’s volatility curve stabilizes after recent spikes. BTC implied volatility dropped from 62% to 58%, while ETH’s daily volatility fell from 82% to 72%. Traders are positioning for potential volatility spikes, with a surge in ETH volatility buying suggesting a renewed price movement.

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Crypto Regulation & Institutional Development

Institutional interest in crypto continues to rise, with significant funding in market-making and crypto credit. The US Senate’s ruling against the IRS’s DeFi broker classification gives a boost to the sector. Notable developments include Flowdesk raising $102M, Ethereum’s Pectra upgrade on Sepolia testnet, and Binance preparing for regulatory impacts on stablecoins.

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Macro & Market Trends

• US 10-year Treasury yield dropped to a YTD low of 4.10%, reflecting risk-off sentiment due to President Trump’s controversial tariffs, sparking a trade war with Canada, Mexico, and China.
• Germany’s fiscal U-turn, with plans for increased government spending amid high budget deficits, caused a spike in Bund yields, influencing higher G7 bond yields.
• The US Fed, ECB, and BOJ are all engaged in Quantitative Tightening (QT), contributing to steeper yields.
• Persistent inflation fears in the US, exacerbated by the trade war, combined with potential deflation in China and stagflation concerns, are increasing global economic volatility.

These factors, along with rising fragmentation in the global economy, have renewed concerns over weak fiscal positions in many developed nations.

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Stagflation Fears & Global Bond Yields

• Germany’s prospective fiscal U-turn on debt brake, specifically to allow for higher defense spending. They also revealed a new 500 billion euros ($535 billion) special fund for infrastructure.
• EBC cuts the benchmark deposit rates to 2.5% while it decreased the economic growth forecast to 0.9% and increase inflation forecast to 2.3% for 2025.
• Private companies added just 77,000 new workers for the month, well off the upwardly revised 186,000 in January and below the 148,000 estimates

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Key Takeaway

Macroeconomic risks are widespread in 2025, with persistent risk-off sentiment potentially impacting both risk and safe-haven assets. Elevated inflation rates seem likely to persist, limiting funding opportunities and reducing potential for strong alpha. Diversifying into alternative assets, such as Bitcoin ETFs and crypto structured products, could provide exposure to different market dynamics.