Bitcoin Tops $120K as Trump Demands 300bps Cut, Crypto Laws Head to House Floor
Digital Asset Market: This week in Washington, the cryptocurrency industry is poised for significant legislative progress as the House considers two key bills to establish regulatory frameworks for digital assets. The stablecoin-focused GENIUS Act has already passed the Senate and is expected to become law, while the broader CLARITY Act, which would define crypto oversight between the SEC and CFTC, faces a tougher journey in the Senate due to concerns over President Trump’s personal involvement in crypto. Crypto companies like Coinbase are actively lobbying in favor of these measures, citing consumer demand for regulatory clarity. Additionally, the House is set to vote on a bill barring the Federal Reserve from launching its own digital currency, a move supported by the crypto industry as a safeguard against government competition.
Macro Economics: China's economy grew at a stronger-than-expected 5.2% in the second quarter of the year, largely thanks to robust exports, which helped to offset weak domestic consumption. However, persistent deflation remains a major concern, as nominal GDP growth lagged and economy-wide prices continued their longest decline on record, raising worries that weak consumer confidence and falling prices could trigger a downward economic spiral. Although President Xi Jinping has signaled intent to address intense industry competition and cut overcapacity, a move possible due to current growth momentum, such reforms could be difficult given the rise of newer industries and ongoing property market struggles. Economists suggest that further supply-side reforms and moderate policy support for the property sector are likely, but many warn that without stronger demand-side stimulus, such as more aggressive monetary easing or fiscal spending, China may continue to face economic pressures even if it meets its 5% growth target for the year.
Equities: The Dow Jones Industrial Average fell 300 points, or 0.5 percent, on Tuesday as concerns over U.S. inflation and underwhelming earnings from major banks weighed on the market, while the Nasdaq rose 0.5 percent thanks to a strong performance from Nvidia, which surged more than 4 percent after announcing hopes to restart sales of its H20 GPUs to China. Inflation data for June came in as expected, with consumer prices rising 0.3 percent for the month and 2.7 percent annually, although this was higher than the May inflation rate and raised concerns about potential tariff-driven price pressures. Market expectations for the current earnings season remain subdued, with S&P 500 earnings growth projected at 4.3 percent year over year, the lowest since late 2023. Meanwhile, the S&P 500 has stayed above its 20-day moving average for 55 days, the longest streak since 2021, which suggests potential for continued gains over the long term but also signals a possible near-term market pullback or increased volatility.
The Fed and US Treasury: President Donald Trump renewed his calls for the Federal Reserve to lower interest rates following a fresh inflation report, posting on Truth Social, "Consumer Prices LOW. Bring down the Fed Rate, NOW!!!" and urging in another post for a 3 percentage point cut, claiming it would save a trillion dollars a year. The report showed annual inflation at 2.7 percent, the highest since February. JPMorgan CEO Jamie Dimon emphasized the importance of an independent Fed and warned of the risks associated with political interference. Meanwhile, the White House sent mixed signals about possibly replacing current Fed Chair Jerome Powell, whose term ends in May, with National Economic Council Director Kevin Hassett saying Trump's authority to fire Powell is being reviewed, while Treasury Secretary Scott Bessent insisted Trump will not remove him and stressed the importance of central bank independence. Bessent and others are seen as potential successors to Powell, as the process to select the next Fed chair continues.
Geopolitical: Trump recently unveiled a new approach to the Ukraine conflict that involves rapidly sending Patriot missile systems to Ukraine, increasing arms sales to NATO countries for Ukraine’s benefit, and threatening up to 100 percent secondary sanctions on Russia’s major trading partners like China and India if a ceasefire is not reached within 50 days. The first two measures aim to strengthen Ukraine’s defenses and attempt to recover lost territory, despite the previous counteroffensive's unsuccessful outcome. The third aims to pressure China and India into reducing their imports of Russian resources in order to hurt the Kremlin’s finances and force Putin toward a ceasefire, risking US trade relations if these countries do not comply. If Trump follows through with his threats, he could trigger serious economic and diplomatic blowback, particularly with China and India, which could harm American interests and disrupt global trade. This risky approach is seen as a clumsy attempt to balance between escalating US involvement and disengaging, possibly spurred by personal disappointment after Putin refused a ceasefire deal.
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Bitcoin Clears $120,000 as Satoshi Enters the Billionaire Elite
Last week’s projection that Bitcoin would break $120,000 proved accurate and came sooner than expected. The surprise was not the milestone itself, but how easily Bitcoin passed through this level during Sunday’s rally. The surge also pushed Satoshi Nakamoto into the 11th spot on the global wealth list, with an estimated net worth of $130 billion based on his reported 1.1 million Bitcoin holdings.
A modest pullback seen yesterday and today is a normal part of market dynamics. A retest of $115,000 remains possible, though it is less likely at this point. Looking ahead, prediction markets assign a 44 percent probability of Bitcoin reaching $150,000 by the end of 2025, but we believe the odds are materially higher. The circulating supply of Bitcoin continues to shrink, while demand remains strong from corporations and sovereign entities alike. The market does not appear overheated. Some profit-taking is underway, but overall conditions remain constructive.
China’s Overcapacity Problem Isn’t Going Away
President Trump recently permitted Nvidia to resume sales of its less advanced H2O chips to China, signaling a potential easing in tech trade restrictions. While some observers see this as a possible step toward a chips-for-rare-earths exchange, no formal agreement has been outlined. Meanwhile, China’s persistent overcapacity and associated deflationary pressures remain unresolved. The government appears either unwilling or unable to reduce this surplus production.
China continues to benefit from deeply entrenched cost advantages, including inexpensive and efficient labor, advanced manufacturing capabilities, and sustained government subsidies. These conditions make large-scale reshoring of manufacturing to Western economies extremely difficult. Instead of relying on punitive tariffs, policymakers would be better served by crafting long-term strategies that leverage domestic strengths such as automation, energy innovation, and supply chain resilience.
Tariff-Driven Inflation Complicates Rate Cut Debate
The recent rise in inflation tied to tariff-driven cost increases is starting to show up in import-heavy categories. These price pressures could broaden and lead to widespread sticker shock for consumers. Against this backdrop, the Federal Reserve's decision to hold interest rates steady while assessing further developments appears prudent.
President Trump's call for a 300 basis point rate cut lacks strong macroeconomic justification. Inflation remains elevated, and cutting rates now would do little to reduce the cost of refinancing Treasury debt. Most of that debt is being rolled over at the mid to long end of the curve, which is less sensitive to near-term rate adjustments. Calls for aggressive easing may appeal politically, but they are unlikely to deliver the intended economic impact.
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