$2 Trillion War: TradFi’s Stablecoin Invasion Has Already Begun
Digital Asset Market: The majors saw some good recovery this week, with BTC hovering around $85K. The financial markets and Tariffs continue to draw attention away from Cryptos. The stablecoins are entering a new phase of heightened competition as traditional financial institutions, such as banks and payment firms, prepare to enter the market in response to evolving regulations like the EU’s MiCA regime and impending U.S. legislation. Currently dominated by Tether’s USDT and Circle’s USDC—with USDT leading globally and USDC seeking greater regulatory compliance—this sector could see as many as 50 new stablecoins launched by year’s end, according to Fireblocks. The industry has already experienced two key phases: initial rivalries among firms like Circle, Paxos, and Binance, followed by the USDC vs. USDT contest, with USDT prevailing outside of U.S. borders, while USDC’s MiCA license positions it strongly within Europe. As the market may grow to $2 trillion by 2028, the entry of traditional finance is expected to intensify competition and innovation. Too many stablecoins are only adding noise to the business.
Macro Economics: President Trump has pledged to expedite permits and approvals for Nvidia's $500 billion US AI infrastructure push—part of a broader wave of Big Tech commitments, now topping $1.6 trillion since his inauguration, as companies race to build domestic AI and data center capacity amid a tumultuous landscape of shifting tariffs and trade policy. Nvidia’s move appears partially prompted by Trump’s on-again, off-again tariff approach, which has disrupted imports of AI server hardware; CEO Jensen Huang emphasized plans to ramp up US manufacturing following Trump’s reciprocal tariffs and subsequent carve-outs. Other tech giants are making similar US-centric investment pledges: Apple vowed $500 billion for domestic manufacturing, TSMC $100 billion, the Stargate consortium (Oracle, OpenAI, SoftBank) $500 billion, and Microsoft $80 billion, all aiming to sidestep volatility from Trump’s fluctuating tariffs, which have driven US effective average tariff rates as high as 27%—levels unseen since the early 20th century—though recent, unclear exemptions for electronics have slightly lowered the rate to about 22%. Despite occasional reprieves and product carve-outs, Trump’s unpredictable mix of tariff hikes and pauses has kept investors and companies uncertain, leading to market swings and cautious optimism; as analysts note, the risk landscape remains fluid, with solid global deals still needed to dispel pervasive uncertainty.
Equities: U.S. stocks fluctuated on Tuesday as investors digested a fresh round of first-quarter earnings reports and benefited from a recent decline in market volatility, with the Dow Jones Industrial Average dropping 89 points (0.2%), and the S&P 500 and Nasdaq Composite slid 0.2% and 0.3% respectively, following two consecutive winning sessions. The day’s quieter trading sharply contrasted with last week’s volatility, as evidenced by the Cboe Volatility Index (VIX) falling below 30 after reaching around 60, while the banking sector, buoyed by Bank of America’s strong earnings and a 4% surge in its shares, helped counter broader market losses, also lifting the SPDR S&P Bank ETF by more than 2%. Investors awaited key reports from United Airlines and Netflix, even as shares of Boeing dipped after news that Chinese regulators were restricting further purchases of its planes. Stocks were supported by news that U.S. Customs and Border Protection would grant exemptions from “reciprocal” tariffs for electronics like smartphones and computers. Still, uncertainty persisted due to suggestions from President Trump and Commerce Secretary Howard Lutnick that these might only be temporary. Despite recent recoveries, the major indexes continued to recover from losses triggered by Trump’s initial tariff announcement on April 2, with the Dow and Nasdaq still down more than 3% and the S&P 500 over 4% below recent highs. While the worst-case scenario for markets appears to have been avoided for now, there remains a risk that sudden headlines could trigger fresh declines.
The Fed and US Treasury: Federal Reserve Governor Christopher Waller stated on Monday that he expects the inflationary effects of President Donald Trump’s proposed tariffs to be “transitory.” The meaning of this term is up for debate and drew criticism when used by the Fed during the persistent inflation of 2021-2022. He outlined two possible tariff scenarios: one where larger, long-lasting tariffs could temporarily lift inflation to the 4–5% range before ebbing as economic growth slows and unemployment rises, potentially prompting an interest rate cut to support the economy, and another scenario with smaller tariffs peaking inflation near 3%, possibly allowing for a “good news” rate cut later in the year. Despite the Fed’s previous mistaken judgment on transient inflation, Waller believes the inflation driven by these tariffs will again be temporary whether tariffs are used to fundamentally reshape the economy—which risks stagnation and higher unemployment—or merely as negotiating leverage, which would likely limit the inflationary impact. He emphasized that the unpredictable economic shocks make Fed policy challenging and require flexibility in future decisions, even as inflation remains above the Fed’s 2% target despite earlier rate cuts in 2024.
Geopolitical: President Donald Trump blamed former President Joe Biden, Russian President Vladimir Putin, and Ukrainian President Volodymyr Zelenskyy for the ongoing war in Ukraine, asserting it’s “Biden’s war” and recalling that no such conflict occurred during his term. Trump claimed both Biden and Zelenskyy failed to prevent the war while also saying Putin should never have started it. He insisted his team is progressing on cease-fire efforts, with envoy Steve Witkoff recently meeting with Putin, although Russia’s demands have stalled peace talks. Trump’s remarks followed a deadly Russian missile strike on Sumy, Ukraine, which drew sharp condemnation from European leaders and further skepticism about Moscow’s commitment to peace. Meanwhile, Zelenskyy rejected Trump’s claims that Ukraine provoked the war, urging Trump to visit Ukraine and witness the consequences firsthand.
View from our desk
Cryptocurrencies recovered this week, though gains remain capped amid lingering regulatory uncertainty. Momentum in the space hinges on the Trump Administration prioritizing crypto and establishing clear guidance for banks and industry players. Meanwhile, the surge of traditional banks entering the stablecoin arena is accelerating. This trend could reshape the competitive landscape by year-end, potentially sidelining independent cryptocurrencies like Bitcoin. The core utility of decentralized assets—fast, bilateral settlement—is being absorbed by centrally-issued stables, posing a challenge to crypto's original promise.
On the macro front, tariffs continue to dominate headlines, with signs that China may have edged out a win in the latest round of economic brinkmanship. Trump's decision to back off tariffs on electronics suggests a tactical retreat, raising fundamental questions about the long-term viability of the strategy. It's not simply about who has more leverage—producer or consumer—but about who can endure the longest. While the U.S. debated cultural issues, China was scaling industrial output with speed and precision. Is the American consumer prepared to pay double for smartphones or sneakers? Is India a realistic replacement for China? Can China pivot to Brazil for grain and the Middle East for energy? And if the U.S. isolates itself, who will absorb our high-cost exports?
The bond market has already issued its warning; now it's the consumer's turn. The U.S. must shed patriotic sentimentality and confront the hard truths of economic competition. Policy choices must be strategic and long-term, not reactive and politically expedient. Capital for technology investment in the trillions won’t appear overnight, and the global supply chain can’t be reshuffled with wishful thinking. As for Trump’s belief that “the proud Chinese would have to make a deal at some point,” that confidence now seems increasingly misplaced.
Happy Trading!
The 1Konto Team
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