Trade War Fears vs. Digital Dollar Dominance - Who Will Blink First in Washington?
Digital Asset Market: All Cryptos, including majors, are under pressure from the potential for a trade war initiated by President Donald Trump, who announced tariffs on goods from Canada, Mexico, and China, causing significant drops in well-known digital assets, including his own meme coin. Bitcoin's price fell from around $105,000 to $92,000 but later recovered after Trump paused tariffs on Mexican and Canadian goods. It has been up and down since then with no clear direction. While bitcoin is seen as a more resilient digital asset, other cryptocurrencies like Ethereum and meme coins have experienced more severe declines. Financial markets globally have been volatile due to Trump's tariff announcements, with Trump indicating that European Union tariffs and possibly UK tariffs are forthcoming.
In other news, President Donald Trump's crypto and AI czar, David Sacks, announced at a press conference in Washington, D.C., that the U.S. is forming a joint working group from both the House and Senate to advance cryptocurrency legislation. The effort is part of a broader agenda to ensure American dominance in digital assets. The announcement coincides with the emergence of a Senate bill focused on stablecoin oversight proposed by Senator Bill Hagerty, aiming to split regulation between state and federal entities. Key lawmakers, including Senate Banking Committee Chair Tim Scott and House Financial Services Committee Chair French Hill, emphasized the priority of stablecoins and market structure legislation, aiming to keep financial innovation within the U.S. Sacks referred to crypto as a "week-one priority" for the administration and emphasized the transition of financial assets to digital, highlighting the desire to retain value creation domestically.
Macro Economics: President Donald Trump postponed 25% tariffs on Canada and Mexico for 30 days in exchange for troop deployments at their US borders to curb fentanyl, illicit drugs, and migrants; however, a 10% tariff on China was enforced, prompting Beijing's retaliatory measures with tariffs on US coal, liquefied natural gas, oil, and farm equipment, and new export controls on minerals while probing Google for anti-monopoly law violations and blacklisting companies like PVH Corp. and Illumina. China's reaction, described as muted, spares major US imports like soybeans and aircraft, hinting at room for negotiation yet highlighting potential harm to US interests dependent on China’s market. Trump aims to use tariffs to tackle fentanyl production originating from China under his 'America First' agenda, with plans to engage Chinese President Xi Jinping directly. Markets responded with a risk-off tone, particularly affecting Asian currencies. At the same time, financial analysts suggest the response might bolster future negotiations, with some expressing concern about unaccounted inflation risks from tariffs leading to potential central bank policy adjustments.
Equities: US stocks ended higher on Tuesday, driven by gains in Big Tech as investors evaluated China's swift response to US President Donald Trump's new tariffs and the potential trade war risks. The Dow Jones Industrial Average rose about 0.3%, the S&P 500 increased roughly 0.7%, and the Nasdaq Composite jumped nearly 1.4%. China retaliated with tariffs on US coal, natural gas, crude oil, farm equipment, and some autos, raising concerns of further escalation but possibly signaling room for negotiation. Optimism grew as Trump expedited talks with China's President Xi Jinping, potentially within 24 hours. The US dollar index slightly decreased as tensions eased. China also launched an antitrust investigation into Google's parent company, Alphabet, and added PVH and Illumina to its "unreliable entities list." Investors focused on Alphabet's earnings report, which saw shares drop due to disappointing cloud revenue and higher spending. Elsewhere, Chipotle's stock declined due to a miss in same-store sales, and AMD shares increased on strong guidance.
The Fed and US Treasury: The Federal Reserve is facing a complex situation with potential tariffs that could trigger a policy Catch-22, leaving it uncertain whether to curb inflation or promote growth. Previously, when President Trump initiated tariffs, the Fed was increasing rates, indirectly leading to a manufacturing recession without affecting the broader economy. Now, broader tariffs are threatened instead of targeted ones, which could further complicate the Fed's monetary policy decisions. Economists anticipate that tariffs will likely raise prices and slow GDP growth, posing a dilemma for the Fed as it tries to strike a balance. The historical impact of tariffs on inflation is uncertain, with the 1930s Smoot-Hawley tariffs worsening the Great Depression. The Fed appears to be in a holding pattern, observing developments before making decisions, especially given recent rate cuts. While some experts believe tariffs won't cause lasting inflation, others think the Fed might have to adjust rates if tariffs spark significant economic disruptions. Overall, the uncertainty surrounding Trump's tariff negotiations with key trading partners like China, Canada, and Mexico makes it challenging for the Fed to chart a clear policy course amid market speculation and economic impact assessments.
Geopolitical: President Donald Trump's proposed "Victory Plan" for Ukraine reportedly includes the United States gaining unprecedented access to Ukraine's rare earth elements in exchange for continued military aid. Trump emphasized the need for a "quid pro quo" with Ukraine, highlighting the importance of securing rare earths that are critical for various technological and defense applications. While Ukraine, facing Russian threats, seems open to this plan, Moscow criticizes it as a commercial transaction rather than genuine aid. The challenge is that much of Ukraine’s rare earth deposits are under Russian control. This move is part of a broader geopolitical struggle over critical resources, with China dominating the global rare earth market.
How can we help?
For bespoke OTC block orders and lending needs, contact: Edwin Handschuh, Co-founder/CEO: Calendar | Telegram | Email
For digital asset on/off ramp and Bitcoin-backed lending, contact:
Curtis Crispin, Director of Institutional Sales: Calendar | Telegram | Email
View from our desk
Support from both the House and Senate for stablecoins backed by USD assets is steadily rising, highlighting the growing recognition of their role in modernizing the financial landscape. These stablecoins, pegged to the dollar and supported by USD assets, are poised to reinforce the global dominance of the greenback in international trade. By providing a reliable digital representation of the dollar, they also prolong the viability of the global USD debt cycle, ensuring that America’s monetary influence remains robust. While there may be reservations concerning regulatory oversight and centralized control, the net positives for the U.S. economy—such as enhanced liquidity, faster transaction times, and stronger economic leadership—undoubtedly carry significant weight.
In the near to medium term, however, this surge in support for stablecoins may not translate into benefits for Bitcoin and other major cryptocurrencies. Many users who are wary of the price volatility associated with Bitcoin and other digital assets are likely to gravitate toward dollar-backed stablecoins, primarily to take advantage of their instant settlement and lower perceived risk. Unfortunately, this pragmatic move toward convenience might diminish the broader appeal and adoption of truly decentralized currencies, as the advantages of a fully democratized digital asset—such as censorship resistance and autonomy from centralized institutions—can be overshadowed by the allure of price stability.
Meanwhile, it is striking that the broader financial markets seem markedly less concerned about looming tariff skirmishes compared to the heightened focus within the crypto sphere. The back-and-forth rhetoric and strategic positioning among major trading partners are expected to persist in the coming weeks. Still, the consensus is that these exchanges are unlikely to escalate into a full-scale trade war. Investors appear cautiously optimistic, anticipating that cooler heads will prevail before any severe damage is done to global trade relations or economic growth.
Happy Trading!
The 1Konto Team
Why Partner with 1Konto?
1Konto delivers deep liquidity, seamless trading, and secure Bitcoin-backed lending with no rehypothecation. Trusted by institutions worldwide, we offer tailored solutions to optimize your digital asset strategy.
Ready to Elevate Your Trading and Lending Strategy?
Connect with 1Konto's expert OTC desk for tailored trading solutions, deep liquidity, and secure Bitcoin-backed lending. Contact us today.
About 1Konto
1Konto is a premier OTC liquidity provider, offering institutions seamless on/off ramp solutions for stablecoins, fiat currencies, BTC, ETH, and select altcoins through its flagship platform, 1KPrime. Clients benefit from deep liquidity, best price execution, and streamlined trading and settlement. Our Bitcoin-backed loans ensure assets remain securely held in bank custody, enabling institutions to unlock liquidity while keeping collateral secure.
Not Financial Advice Disclaimer