Q1 2025 has just wrapped up and, wow, from a markets’ perspective it’s almost exactly like no one expected. Trump led the charge with tariffs and tanked all markets with a mix of uncertainty, fear, doubt etc. Having said that, there is light at the end of the tunnel. Without further ado let’s see what that is.
Tempering tariffs
I really don’t want to talk about tariffs but the fact is it’s pretty much all anyone is talking about, so I figured I’d do a modest weigh-in here. Yes, they have for the moment negatively impacted the markets. No, the sky is not falling in the crypto space. To the contrary, the stage is set for a historic last leg of this crypto bull run, and it may be the biggest leg yet. We have a weakening dollar, falling inflation with the March numbers showing 2.4%, and expanding global M2. We have a runway for innovation cleared here in the US, the latest of which is crypto friendly Paul Atkins is now officially SEC chair. So. Much. Good. News.
But then, tariffs. Look, I understand the goal. I understand the desire to drive the American economy and promote our domestic business endeavors. I understand the desire to have trade reciprocity that’s balanced. I also understand they are a weapon and can be used as such (Hi, China!) And, boy oh boy, Trump has been swinging the tariff stick like a torpedo bat. In early April Trump proposed “reciprocal” tariffs, which turned out to be so much more, on pretty much the entire world. The markets responded with appropriate doom and gloom. US Stocks recorded the biggest two day wipeout in history, and pretty much all equities markets tanked. Crypto did not. The crypto markets held fast – and not only that, they were up! Black Rock CEO Larry Fink stated in 2023 that crypto was a “Flight to Quality.” This would seem to be in line with that and is just another point in support of the upcoming bull leg.
Now having said that and to be fair, nothing is completely immune to global meltdown and mind-numbing fear. Given their liquid nature as things escalated crypto had a burble on April 6 as Trump imposed an additional 50% tariff on China… for which China responded. Then Trump put a 90 day hold on tariff enforcement for all countries except China. Then China increased its tariffs and we had whiplash again and, well, it’s hard to keep up. At last check US had 145% tariffs against China, China had 125% tariffs against the US, and it’ll probably change again by the time this is published. Just turn on any news station for the latest blow-by-blow as it seems to change every 15 minutes (there’s a very good timeline here). Back to the topic at hand, sure, we did see a burble in crypto, but it was one from which quickly recovered within three days. We must take two points away here. In the middle of a chicken race like this everyone ducks their head and all markets, including crypto can be impacted. However, in events like this crypto typically recovers the fastest and it actually appears to be providing some immunity. This makes sense and I would expect greater resilience in circumstances like this because crypto is non-political – it’s not attached to any specific country. It would stand to reason then that it would be less affected by tariffs, and this is another tick in its endeavor to strive for safe haven status. Ultimately, we’ll have to see when these markets mature to that level, but for the time being one thing is really important to note: they’ve actually been less volatile than the equities markets. Which is saying something.
Stable Genius
Meanwhile, Congress got into the crypto game in a big way with the Senate Banking Committee sending the GENIUS act to a vote and the House Financial Services Committee also sending the STABLE act to vote. Importantly, both bills had bi-partisan support. STABLE (Stablecoin Transparency and Accountability for a Better Ledger Economy), is designed to regulate, well, stablecoins. While the acronym is wedged together and is, dare I say, clunky, the bill is very important and provides clear guidance around stablecoin usage. (Sidebar: For those new to Crypto: Decrypted let me do a quick definition. A stablecoin is a crypto asset that is pegged to another currency, in this case, the US Dollar. Its whole point is to allow the transactional benefits and frictionless liquidity of crypto with the stability of an established currency. If I were to send you 100 USDC for example, you could then exchange it for $100. That’s it… it’s a stable… coin. OK, back to the bills.)
STABLE does a few things including requiring all stablecoin issuers to have full 1-1 backing of all coins, prohibits interest generation or other incentives so people don’t flee banks, grants regulatory oversight and also guarantees AML/KYC (Anti Money Laundering/Know your Customer) rules are enforced. Not to be outdone, the Senate’s GENIUS act (Guiding and Establishing National Innovation for US Stablecoins) also tackles stablecoin regulation. It is similar to STABLE in that it has a clunky acronym, defines what a payment stablecoin is, requires 1-1 backing, has a no interest provision and enforces AML/KYC requirements. Where it differs is that where STABLE establishes the requirement for both state and federal oversight, GENIUS notes that issuers with less than $10B can opt to be solely state regulated… which as you know could be a big difference in how measures are handled and enforced.
If that’s too head spinning, it’s simply this. The US, which went years without any such regulation, now has not one but two bills up for consideration. GENIUS is probably a little more industry friendly while STABLE is a little stricter and follow traditional banking guidelines. The fact is that it doesn’t matter. At the end of the day, I expect one of these to pass in short order and ultimately that is going to be very good not just for the crypto industry but for innovation here in the US as a whole. This is part of the transformation of our financial systems happening right before our own eyes and, importantly, the US is getting on board. Finally.
Just Reserves
It was one of his campaign promises. And here it is. With the signing of the executive order on March 6, Trump created the first US Strategic Bitcoin Reserve. It almost seems like a lifetime ago in the midst of our trade war, but it’s here. And it is important. This order creates the foundation for the United States to hold bitcoin as a part of its treasury. I cannot overstate the magnitude of this. First and foremost, it acknowledges bitcoin as one of the fundamental and foundational assets on the planet. Second, it sets the rules for the United States to specifically and deliberately acquire more bitcoin, which I think is inevitable in the coming years. So then, let’s explore the impact of this. What happens when arguably the most powerful nation on the planet starts stacking bitcoin? Well, fundamentally, it impels every other nation on the planet who wants to have any sense of financial sovereignty to do the same. The demand will be almost unimaginable. The Executive Order it didn’t stop there either. It also set up a Digital Asset Stockpile which contains other crypto assets. This is nuanced but important so let me differentiate this. Bitcoin is digital gold. It’s a reserve asset. Full stop. That’s in its own class and is distinct from other digital assets that represent fundamental technologies. Such assets also have value, but they are technologies not native financial instruments. Therefore, the stockpile with other non-bitcoin assets seems a little strange to me. Having said that, the US is hoarding those as well which should be really great not only for those assets but the crypto markets in general.
Ultimately the messaging here is simple. The core components of this new digital age are not a fringe phenomenon. They are a thing of value, and the US wants them. If, dear reader, you have disregarded this space up until this point this is your sign that you ignore further at your own peril. It’s happening, and the US wants to lead the way. It’s about time.
OMG IMF
And if that wasn’t enough the International Monetary Fund jumped in and is also now officially embracing this digital world. As of March 20, the IMF has added bitcoin and other crypto assets to its Balance of Payments Manual, BPM7. This represents the first time the IMF has offered detailed guidance to the international statistical community on how to capture digital asset activity in its global statistical standards. BPM7 clarifies what crypto assets are, distinguishes between fungible and non-fungible assets and denotes they can be used as a means of exchange. This. Is. Important. I mean…. do I need to say any more? The agency that is designed promote worldwide financial stability and monetary cooperation is officially embracing this new technology and, lest it get too far ahead of them, is now striving to be a part of the transformation at hand. What was once shunned around the world is now being embraced at the highest levels. Love it. Hate it. It doesn’t matter, because it really is happening.
In Closing
There is SO MUCH MORE that I want to talk about ranging from ETF inflows to adoption in corporate America to Ripple’s bid to takeover the financial world but, lest this fall into the TL;DR pile, I’ll save that for next time. What I do want to leave you with is that we are looking at continual worldwide adoption of this technology. It simply is inevitable at this point.
Even so, there are so many that still are crypto-phobic, (I suppose in the way that many were skeptical of the internet.) I meet them every day. To the skeptics I would simply say that it is time to turn the corner. If you’re on the bus, congratulations, because this is far from just an investment opportunity, it’s the transformation of how our society will function. If, however, you are still not a believer then I’m going to plead with you to simply follow a little cowboy wisdom… and ride the horse in the direction it’s going.
That’s all for now. Until next time be well, stay safe, and I’ll keep Decrypting Crypto for you!