Macro Dose - Crypto Markets Crashing: What You Need to Know
Crypto & Stocks Underperformance, US 10Y Yield, & More
In yesterday’s edition, we discussed some basic structural changes to the crypto market that have taken place over the past couple of months. Today, before U.S. markets even open, crypto’s total marketcap is down nearly 9%, with $BTC down over 7% in the past 24 hours. With a new local low just above the $87K level, $BTC currently has rebounded to just above $89K, though its positioning is already faltering.
In today’s edition, we’ll touch on the markets one more time to try and pinpoint a cause of the current downward trends in crypto and figure out what needs to change for more bullish sentiment to resume.
Stay informed in the markets ⬇
Current Macro & Crypto Environment
Over the past year or so, the rest of the crypto market has traded mostly in line with $BTC. Starting in Q2, 2024, around half of last year saw both alts and $BTC chop, before the November election catalyst sent almost all of crypto higher. This has quickly changed, as evidenced by the rapid divergence that has grown between $BTC and the rest of the market.
There aren’t any clear crypto-specific indicators that might point to this selloff. We’ve thoroughly discussed both the $LIBRA debacle and the recent Bybit exploit in newsletters and emails for our premium members. The $LIBRA token has cleared out a lot of the Solana ecosystem, with $SOL itself down nearly 45% in the past month. The Bybit situation has mostly already been handled, with Bybit stating they had already accumulated most of the $ETH required to cover their ~$1.4B hole.
Yesterday even saw some positive news, with it being announced that Citadel would focus more on crypto presumably due to more regulatory clarity. This comes after even Robinhood announced that ⅓ of its Q4 revenue came from its crypto services, and they plan on continuing investments in this sector going forward. The market has shrugged off these headlines involving institutional TradFi adoption.
The market may be more fixated on news coming from the U.S. government, taking anything short of a Strategic Bitcoin Reserve (SBR) with a grain of salt, or even as a minor sell-the-news event. This could be observed from the market’s reaction to statements and even executive orders regarding crypto from President Trump, Crypto & AI Czar David Sacks, or Senator Cynthia Lummis.
A lot of the current market dynamics might have to do with Trump and any unexpected reactions to his policies. In some ways, Trump has both under and over-delivered on some of his campaign promises that could impact the markets the most.
Tariffs: Since taking office, Trump has announced tariffs on Canada and Mexico, delayed them, enacted new metals tariffs that would also affect Canada and Mexico, and then recently proclaimed that the two countries would in fact be subject to blanket tariffs after all. This fuels uncertainty and potentially creates a ‘boy who cried wolf’ situation.
Immigration: The Trump admin so far has deported less illegal immigrants than previous administrations. This could potentially be seen as a good thing for markets, as rapid deportation in large numbers could create shock in the labor markets of the agricultural, home building, and services sectors.
Foreign Policy: The Trump admin seems to be distancing itself from Europe, negotiating with Russia directly without involving Ukraine or other countries in the region. This might not be a particularly bad thing that drew a reaction from markets one direction or another, but it definitely caught some off guard.
It is often said that markets hate uncertainty, and the Trump admin so far has been somewhat of a testament to how much uncertainty can possibly be stirred up in just a month. U.S. stocks are being outperformed by both European and Chinese stocks YTD; the Nasdaq is nearly dipping into negative territory. This is probably the most reasonable explanation for crypto’s drastic underperformance so far in Q1, while $BTC has remained moderately high, due to more stick liquidity from Michael Saylor’s Strategy, and ETF flows.
Moving the Goalposts?
One explanation for this underperformance from both crypto and US stocks is the Trump admin placing more of an emphasis on decreasing bond yields as opposed to boosting the stock market, or even the price of $BTC (the performance of the rest of the crypto market has not really been acknowledged by the Trump admin). If this is to be accepted as the measure of success, then things are going better than you might otherwise think if judging by the equities markets.
The US 10-year yield has decreased significantly since Trump took office. This can serve as a different benchmark for the long-term sustainability of the U.S. economy, and lowering rates can lower the cost of capital for homebuyers, large U.S. companies, and other groups.
The current macro situation involves a U.S. admin that has to balance short-term and long-term interests; a rallying stock market might not be indicative of the kind of success the Trump team wants to set in motion. As time goes on, markets might be more accustomed to this administration’s antics, and there is the potential for DOGE to genuinely remove regulatory red tape, allowing for more productive economic activity to take place. In the short to mid-term however, laying off thousands of government workers and slashing spending budgets can somewhat deflate the economy and restrict some of the capital that might have found it’s way into the markets.
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