Turbulence Meets a Glimmer of Relief

Tariff Shock and Trade Policy Escalations

The global financial markets have been whipsawed by fear, concern and confusion caused by tariff wars.  On Monday, all asset class faced the global sell-off. Dow Jones, S&P, NASDAQ touched YTD lows while all G7 Bond Yields plummeted due to strong recession fear. The crypto market did not escape this sell-off pressure in search of cash liquidity. BTC touched $74,500, YTD low on Monday. All other cryptocurrencies declined even lower in terms of percentages. Throughout this week, the obviously moderate recovery in sentiment based on 90 day delays on many tariffs supported a strong rebound in all market on Wednesday. Equities and Crypto have given back gains on Thursday, yet government bond yields are floating above last week’s close level. Although US March CPI figures were slightly lighter on inflation, bond markets do not seem convinced of disinflationary trend in the future due to unclear path of tariff wars.

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Crypto Resilience: Stablecoins and DeFi on the Rise

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In the midst of traditional market volatility, the crypto space, particularly stablecoins and DeFi protocols, continues to display structural strength.

• On April 9th, Bitcoin hash rate has yet made another all-time high with it touching 924.98 EH/s. Over the past week, daily transaction counts have risen, and new addresses have spiked by 15%. This increased activity comes at a time when Bitcoin’s price has been whipsawing. Regularly BTC price is highly correlated to changes in Hash Rate although current BTC price move is decoupled from it.

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• Stablecoin supply has surged from about $125 billion at the beginning of 2024 to nearly $230 billion today—an 84% jump. Cross-border payments on stablecoin networks are reported at $50 billion per month, signaling robust adoption beyond speculative trading.
• Notably, AAVE set a new record with deposits reaching 11.02 million ETH (approximately $17.32 billion), compared to just 3 million ETH earlier this year. Similarly, deposits on protocols like Sky (formerly MakerDAO) have increased significantly, while Spark received a 1 million ETH boost.
• Although total DeFi TVL fell to $95 billion (its lowest since November), trading activity in decentralized exchanges surged above $11.8 billion, reflecting a broader shift towards risk‑off, delta‑neutral yield strategies.

Analysis: While these inflows suggest a flight into DeFi for stability—and to hedge against market volatility—they could still be temporary. Elevated deposit levels might reverse once overall market sentiment stabilizes, so investors should monitor trends closely.

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MicroStrategy’s Crypto Challenges

On the institutional side, MicroStrategy reported projected unrealized losses of $5.91 billion on its Bitcoin holdings for Q1 2025, with its stock down 11% premarket at $260.92.

• The company has paused further Bitcoin purchases amid policy uncertainty, raising questions about its ability to recover profitability if conditions worsen.
• This development highlights a broader concern: as market turbulence and geopolitical risks intensify, corporations may rethink their heavy crypto exposure.

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Financial Markets: Market Turbulence: Equity Slumps and Volatility Surge

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Global equity, bonds, and FX markets experienced very volatile markets. A glimmer of relief emerged on Tuesday when Trump announced a 90‑day tariff pause on most reciprocal duties (dropping them to 10% across most partners). This quick policy pivot led to a temporary market rebound of over $3.5 trillion. However, gains were partially undone when it became clear that the tariff pause would not extend to China. The diversification from US assets is driving higher yield, weaker $ and flow into gold.

• In the U.S., futures for the Dow, S&P 500, and Nasdaq‑100 plunged sharply, with Nasdaq contracts falling by over 4% at the open.
• In Asia, Japan’s Nikkei 225 dropped between 6% and 8%, with exchanges even halting trading briefly; South Korea’s Kospi fell by 4.6%.
• Over a 48‑hour period, U.S. stocks lost an aggregate $6.6 trillion in market cap.
• The Cboe Volatility Index (VIX) spiked near 60—levels last seen during the 2008 crisis and the 2020 pandemic—indicating heightened uncertainty and risk aversion.
• Gold price($3224.50) is at all time high again while US Index (99.48) is at the lowest point in this past 1 year.

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U.S. Tariff Update

On April 3, President Trump announced a universal 10% tariff on imports from all nations, while imposing much steeper rates on countries he labels as “unfair.”

• China faces a base tariff of 54%, later pushed to 125% after Beijing’s failure to reverse its retaliatory measures.
• In which they have not remained silent in this escalating dispute. The People’s Bank of China directed state‑owned banks to curb U.S. dollar buying, seeking to stabilize the renminbi. Simultaneously, China’s Tariff Commission announced plans to raise tariffs on certain U.S. imports from 34% to 84% effective April 10—an aggressive countermeasure.
• Other “worst offenders” on the list are hit with tariffs ranging between 11% and 50%.
• Although Canada and Mexico are exempt from the reciprocal tariff calculation, many of their exports still carry a 25% tariff from earlier actions.
• The administration’s analysis excludes services—ironically, a key U.S. strength—while focusing solely on goods, aiming to rebalance trade deficits by protecting domestic industries.
• Some applaud these measures as necessary to curb “unfair trade,” whereas critics fear the steep duties could stifle consumer spending and trigger a recession.

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U.S. Inflation Data: A Mixed Signal

The macro backdrop offers a surprising twist: U.S. inflation cooled to 2.4% year-on-year in March, the lowest level since September 2024, down from 2.8% in February.

• Gasoline prices fell by 6.3%, dragging the overall energy index down by 2.4% in just one month.
• Meanwhile, food prices nudged upward by 0.4%; core inflation, excluding food and energy, dipped to 2.8%—a 4‑year low.
• The monthly CPI reading even slipped -0.1% in March—the first decline since May 2020—contrary to forecasts of a modest increase.
• Fed watchers caution that the current low inflation reading does not yet incorporate the full impact of April’s tariff measures. Fed Chair Jerome Powell has warned of “larger than expected” inflation risks from tariff pass‑throughs.

Implication: While a sustained sub‑2.5% inflation rate could prompt another rate cut, Powell’s remarks indicate the Fed’s cautious approach, emphasizing a data‑driven strategy amid persistent uncertainty.

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FOMC Minutes & Treasury Yields: Standing at the Crossroads

The FOMC minutes from the March 18–19 meeting reinforce the Fed’s “wait-and-see” stance.

• The central bank held the federal funds rate steady at 4.25%–4.50%, citing growing trade policy uncertainty.
• Minutes revealed officials are prepared to adjust policy if tariff-induced inflation accelerates or if economic growth weakens sharply.
• On the bond front, the 10‑year Treasury yield climbed about 12 basis points to near 4.42%, while the 30‑year hit approximately 4.90%. Short‑term yields also rose modestly, suggesting that while uncertainty remains high, there has been no dramatic flight to safety.

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Looking Ahead: What’s Next for Markets and the Economy?

As we navigate this turbulent week, several key themes emerge:

• Monetary Policy: With U.S. inflation at a promising 2.4%—and core inflation hitting a four‑year low—the Fed might be tempted to cut rates. Yet, Powell’s caution on “rising uncertainty” suggests that future policy moves will depend critically on how tariff impacts materialize.
• Trade and Global Policy: Trump’s aggressive tariff policies and China’s retaliatory measures indicate a protracted trade war. Watch for further adjustments in tariff rates and their cumulative effects on both domestic and international supply chains.
• Crypto & Alternative Finance: The resilience in stablecoins and DeFi reveals an ongoing structural shift toward decentralized finance. However, this may partly represent temporary risk‑off positioning rather than a definitive long‑term trend.

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Final Word

The first week of April 2025 presents a juxtaposition of volatile swings and pockets of resilience. On the one hand, steep tariffs and a global sell-off are unsettling markets across the board. On the other hand, while U.S. inflation continues to decline and there have been robust inflows into stablecoins and DeFi protocols, these crypto sector gains primarily reflect investors seeking alternative, risk‑off yield strategies amid heightened uncertainty rather than serving as a full substitute for stability in traditional credit markets. As policy decisions from the Fed, evolving trade negotiations, and corporate responses unfold, market participants must remain agile and discerning amid this multifaceted, turbulent landscape.