What happened today? 19 Jan 26'
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The markets experienced a low volatility day, as the US stock exchange remained closed for holidays while the Davos world economic forum commenced. Despite the quiet start to the week, the weekend witnessed a sharp acceleration of Greenland tension. Trump announced a 10% tariff on countries interfering with the US purchase of Greenland, effective Feb 1st, with a further escalation to 25% by June. This news created instability in futures markets yesterday, aggressively washing out BTC and cascading through a significant volume of leveraged longs. These actions, which occurred around midnight Sunday to Monday UTC, highlight three key realities: market participants continue to leverage heavily; liquidity in open markets is insufficient, causing rapid -3% drops; and BTC remains the primary traded asset for reacting to macro tensions.
NYSE new tokenized platform, will unlock a transition to a 24/7 schedule - platform for trading and onchain settlement of tokenized securities. When that is live, BTC will lose its status as the sole macro asset tradable around the clock. Consequently, it can finally evolve into a reserve asset that substitutes gold. On the shock, gold and BTC correlated negatively and quite perfectly upon the macro tariff announcement: gold moved up while BTC moved down, noting the distinct function each asset currently holds in open markets. Ultimately, tokenization will enable a 24/7 NYSE, freeing BTC to act as a true reserve asset.
The EU is reacting differently to this geopolitical pressure. Macron mentioned that Europeans will respond in a united, coordinated manner if tariffs are confirmed, asserting that neither intimidation nor threats regarding Ukraine or Greenland will influence them. Europe is preparing 94b EUR bazooka to counter the Trump Greenland threat, utilizing the ACI (anti-coercion instrument). These measures are meant to strengthen Europe’s position ahead of talks with Trump and prevent a major rupture in transatlantic relations. European stocks, specifically car makers and luxury goods, reacted negatively to the news, while defense companies moved up.
The defense industry is the one sector that continues to benefit from these geopolitical tensions, and I expect this trend to persist as escalation drives the market at least until the mid-term. Active tensions are near the breaking point globally, including Latin America, Greenland, Ukraine, Iran, Taiwan, Sudan, Myanmar, and Congo. There are too many conflicts.
Apparently, the political sphere has forgotten Ukraine, and Russia keeps fighting there. Marcel Fratzscher mentioned it is high time the EU strengthens global cooperation with China and others. While the Germans are advocating for cooperation, China stated that the US should stop using the so-called “China threat” as a pretext to pursue selfish interests, while Bessent noted Europe’s weakness, arguing they are too weak to ensure their own security. The EU-US tension is escalating, which is concerning given that NATO established the current world order and the European economy is already in trouble.
The UK remains the polite country; Keir Starmer mentioned the right approach is through calm discussion between allies, supporting the decision to be made by the Greenlanders and Denmark. Keir rejected the approach of applying tariffs on allies to pursue the collective security of NATO. Basically, the UK stands with NATO and the EU.
Simultaneously, Trump invited Putin to the peace board. Ironically, I do not judge this when thinking strategically, recalling Sun Tzu: “If you know the enemy and know yourself, you need not fear the result of hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle”. I believe Trump is pushing to keep friends close and enemies closer by creating proximity to Putin. Trump must control Putin if they aim to maintain US power.
Regarding the use of force, I do not believe Trump will ever use force to seize Greenland, despite answering “no comment” when asked by a reporter. Neither I nor Alexander Stubb, the Finland president, believe the US will take military control of Greenland.
The Trump tariff playbook is fairly simple but effective. A barking dog seldom bites; Trump does not truly want tariffs to go live, but rather seeks leverage against the opponent. He starts with a message on his channel mentioning tariffs on a Friday or Saturday when US markets are closed. Later that day or shortly after, he increases the tariffs to a larger number. By Saturday or Sunday, he doubles down to create fear. Usually, as countries get online and Sunday futures open in fear, the stock market dumps. On Monday, Trump continues applying pressure, but investors eventually realize tariffs are not yet live. During the week, dip buyers fade until smart money enters and the real dip happens. The weekend after, Trump posts that discussions are underway and he is working toward a solution with world leaders. Sunday futures then open with optimism, Bessent goes live to reassure investors of progress toward a deal, and over the next 2-4 weeks, the trade deal dominates conversations, driven by positive sentiment. Eventually, we hit a new ATH. It is all cinema; enjoy the movie.
Amidst this, China keeps growing above expectations, posting 4.5% GDP YoY and an even more impressive 5.2% industrial production YoY.
The Davos world economic forum will be crucial for geopolitical considerations and trade deals, but also for gathering information on the market structure bill, tokenization, and stablecoins. After Eleanor Terrett spread FUD mentioning potential White House support removal if Coinbase does not negotiate with banks, Brian highlighted the lack of accuracy on that information. Now, on the Davos playground, he mentioned they are meeting with banks and CEOs to figure out a win-win solution. Stablecoins should be an opportunity for both banks and crypto companies, provided we are all treated on a level playing field.
Traditional markets are currently at euphoric levels that I have not traded before. This is different for me because, in crypto, I know how to trade and react to markets that usually fade in a couple of weeks or months. However, in traditional markets, trends can take years to break. And patient is the wise friend. US equity ETFs attracted a record +400b over the last three months. Leverage long-ETFs now hold $145b in assets, while funds shorting the market hold only $12b. Risk appetite is through the roof. Silver futures keep rallying, now trading at $90, up 30% YTD already. It is crazy, with Shanghai premiums gapping at 4x over the last few weeks.
10-year tbills rise to $4.25%, higher since September.
Bitcoin still trading bellow STH-Cost basis; But institutional balance-sheet flows have gone through a full reset over the past few months. Net flows on ETF, corporations and sovereign entities have now stabilized, marking a clear exhaustion of sell-side pressure form long-term structural holders. CVD transitioning back into buy-dominant regime. We are looking ahead Q1, to be constructive. With sell pressure easing, with further inflows that eventually will be reflected in prices.