In a world where tariffs rain down like confetti at a particularly chaotic wedding, President Trump has once again stirred the pot of global economics. This week, financial markets have been tossed about like a salad, with Bitcoin and its crypto companions caught in the whirlwind. But fear not, dear reader! A memo from the wise sages at Bitwise Asset Management suggests that, come what may, Bitcoin is destined to soar—like a phoenix, or perhaps a particularly ambitious pigeon, regardless of whether Trump’s grand strategy is a hit or a colossal flop.
As the week began, the crypto market experienced a sell-off so severe it could make a grown man weep. Bitcoin took a tumble, down about 5%, while Ethereum and XRP decided to join the pity party with losses of 17% and 18%, respectively. The culprit? A hefty 25% tariff on imports from Canada and Mexico, and a cheeky 10% on China. Naturally, these trading partners responded with their own countermeasures, because why not add fuel to the fire?
In a twist worthy of a Dostoevsky novel, the US dollar jumped more than 1% against major currencies, as if it were trying to impress someone at a bar. This, combined with the weekend’s crypto market hangover, led to a wave of forced liquidations, with leveraged traders selling off like they were at a yard sale. According to Bitwise’s Chief Investment Officer, Matt Hougan, a staggering $10 billion in leveraged positions vanished into thin air, marking “the largest liquidation event in crypto’s history.” Talk about a dramatic exit!
Yet, amidst the chaos, Bitwise’s Head of Alpha Strategies, Jeffrey Park, remains as optimistic as a cat in a sunbeam. He points to two guiding principles that shape his bullish outlook: the ‘Triffin Dilemma’ and Trump’s grand vision to reshape America’s trade dynamics. Because who doesn’t love a good dilemma?
The Triffin Dilemma, a fancy term for the conflict between a currency being a global reserve and the need for persistent trade deficits, is like a soap opera plot twist. While this status allows the US to borrow at bargain prices, it also puts pressure on domestic manufacturing and exports. It’s a classic case of “you can’t have your cake and eat it too.”
“Trump wants to get rid of the negatives, but keep the positives,” Park explains, suggesting that tariffs might just be a negotiating tactic to bring other nations to the table—reminiscent of the 1985 Plaza Accord, which devalued the dollar in a coordinated effort. Because nothing says diplomacy like a good old-fashioned tariff war!
The Two Scenarios: Bitcoin Wins, Fiat Loses
Park argues that Bitcoin stands to benefit under two distinct outcomes of Trump’s current trade policy:
Scenario 1: Trump Succeeds in Weakening the Dollar (While Keeping Rates Low)
If Trump can pull off a multilateral agreement—think ‘Plaza Accord 2.0’—to reduce the dollar’s overvaluation without raising long-term interest rates, US investors might just start throwing money around like confetti. In this scenario, Bitcoin, that rebellious non-sovereign asset, would likely attract a flood of new investments. Meanwhile, other nations, reeling from a weaker dollar, might resort to fiscal and monetary stimulus, driving even more capital toward Bitcoin. It’s like a financial game of musical chairs, and Bitcoin is winning!
“If Trump can bully his way into the position, there’s no asset better positioned than Bitcoin. Lower rates will spark the risk appetite of US investors, sending prices soaring. Abroad, countries will face weakened economies and will turn to classic economic stimulus, leading again to higher Bitcoin prices,” Park argues. Sounds like a win-win, right?
Scenario 2: A Prolonged Trade War And Massive Money Printing
If Trump fails to secure a deal and the trade war drags on like a bad sitcom, global economic weakness would almost certainly invite central banks to unleash a torrent of monetary stimulus. Historically, such liquidity injections have been like catnip for Bitcoin, as investors seek out deflationary and decentralized assets that are immune to central bank antics.
“And what if he fails? What if, instead, we get a sustained tariff war? Our high-conviction view is that the resulting economic weakness will lead to money printing on a scale larger than we’ve ever seen. And historically, such stimulus has been extraordinarily good for Bitcoin,” Park says, with a twinkle in his eye. Who knew economic turmoil could
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2025-02-05 21:42