Tariffs, currencies and crypto
plus, assorted links, and some Eurovision videos because why not
Hello everyone, I hope you’re all doing well! Absolutely gorgeous Spring weather where I am – I hope you are similarly blessed this weekend.
You’re reading the free weekly Crypto is Macro Now, where I reshare/update a couple of posts from the week, offer some interesting links I came across in my weekly reading, and include something from outside the crypto/macro sphere that is currently inspiring me (it’s a fascinating world out there).
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Production note: I got Memorial Day wrong in yesterday’s newsletter which was kinda dumb, so I will be publishing as usual this Monday.
In this newsletter:
Tariffs, currencies and crypto: speculation or escape?
Assorted links
Eurovision – worth watching, seriously
Some of the topics discussed in this week’s premium dailies:
(since I had to skip last Saturday’s weekly, this recap covers the premium dailies from the past two weeks)
Coming up: geopolitics, US rates and more
A new wave of retail crypto giants
Macro-Crypto Bits: jobs, elections, tariffs, BlackRock, Sony, Circle and more
The US Treasury report on stablecoins wasn’t that great
A glimpse at the US crypto bill
Macro-crypto bits: tariffs, realignment, digital euro, Litecoin
Tariffs, currencies and crypto: speculation or escape?
Currency turmoil gathers steam
Asian self-reliance
Macro-Crypto Bits: rising tensions, tariff talks
Coming up: inflation, retail sales, a crypto round table and a ton of geopolitical moves
Trade deals: disappointing and hopeful
A new Fed attack
Macro-Crypto Bits: markets, macro, ceasefires, stablecoins and more
Tokenization and the SEC
Macro-Crypto Bits: rate expectations, South Korea, AI payments and more
US inflation: the split reaction
Markets: the metric to watch
The cash scare
Macro-Crypto Bits: converging markets, tariff countdown, legal pushback
Stablecoins and fintech
Open banking and crypto
Thailand’s government crypto token
Macro-Crypto Bits: markets, macro, crypto regulation and more…
Tariffs, currencies and crypto: speculation or escape?
Big problems need big solutions. And big solutions can lead to big problems.
Since the turn of the century, US government debt has grown by more than measured economic activity, rising from around 50% of GDP to over 120%. Interest payments are increasingly drowning out productive uses of public funds; should this trajectory be maintained, investor confidence in the US government’s ability to honour debt obligations will weaken.
This would make it more expensive to borrow, leading to an even heavier interest burden and a vicious hollowing out of a global economic lynchpin that would hurt everyone, everywhere.
The approaching fiscal reckoning is one of the big problems global leaders have to contend with.
Another is the populist swell in the US that has been interpreted by the current Administration as a demand for “real” manufacturing jobs that enhance US exports and, more importantly, lead to the return of national pride and ambition. The economy of the Midwest US has grown more slowly than those of the east and west coasts, despite having ample natural resources. So has its median wage. And it has been a devastating paradox that the US, the wealthiest nation in the world, is also one of the unhealthiest, with an average life expectancy more than four years lower than the that of other developed countries.
There are many other big global problems besides – the risk to jobs from artificial intelligence, the retreat of democracy, the disaffection of the younger generation and climate change are but a few.
Yet the pressing need to bring down the US budget deficit while shoring up manufacturing and restoring economic balance has been a key pillar of the Trump Administration’s platform since well before the inauguration – and his electoral victory has moved these issues and their consequences to the top of the list of global concerns. The quiver of “big solutions” put together by Trump’s economic advisers has already roiled markets, strained relationships and damaged supply chains – and the arrows have only started to be deployed.
Below, I’ll briefly outline what those arrows look like. I’ll sketch out the likely impact on key currencies. And I’ll address what all this means for nascent crypto asset markets – it’s not so much about extending US influence as it is about counteracting it.
Trade barriers
One of the arrows we’ve already seen is tariffs. On April 2nd, inappropriately named “Liberation Day”, President Trump announced levies to be charged on imports from pretty much everywhere, including some remote islands that don’t export anything to the US. Bewilderment rapidly spilled beyond the list of names to the designated tariffs – these were not calculated according to reciprocity as promised, but according to recent trade balances.
Hours after the tariffs went into effect, some were given a 90-day extension while others remained in place, and those on China started a tit-for-tat escalation to the currently ludicrous level of 145%. Trade between the two hegemons has effectively ground to a standstill, which will upend much more than hard data on economic activity.
The short-term goal here is to take a sledgehammer to imports in order to boost US production, even though for many products the US is topologically or economically unable to replicate scale (such as for coffee and avocados) or low-cost inputs (such as for shirts and machines).
But there’s another goal as well: to beat all trading partners into stunned submission, and bring them to the table to discuss the next arrow in the quiver – currency manipulation.
Devaluation
To boost exports, the US needs the value of its currency to decline.
An overvalued dollar has held back US competitiveness by making US exports relatively more expensive for importers than similar products in other currencies. Why is the US dollar persistently overvalued? Because its demand is not limited to trade. As the world’s reserve currency, sovereigns and investors everywhere see the dollar as a store of value and a useful savings asset. Put differently, the dollar’s reserve currency status distorts its market value, keeping it well above what trade balances would dictate.
Should the dollar decline in value relative to other currencies, importing US goods becomes a more attractive option.
But, when the dollar declines against the currencies of other countries, their goods become more expensive for the US to import – so, on the whole, they do not want a revaluation. Hence the need to find a tool of persuasion.
We could see the US offer to lower tariffs in exchange for an agreement to accept and even help achieve a weaker dollar. The Plaza Accord in 1985 formalized a commitment from the world’s largest economic powers at the time to coordinate a devaluation of the US dollar to better balance global trade. Now, commentators are talking about a “Mar-a-Lago Accord” in which President Trump could convene global leaders at his Florida home to wrangle international cooperation in bringing the dollar down.
The crypto trilogy
Here is where the potential impact on crypto assets enters the story. To complicate the tracking, the impact has three threads: speculative, store of value, and humanitarian. And they are all intertwined.
For the sake of brevity, here I’ll focus on Bitcoin, the oldest and largest crypto asset by market cap. There will of course be impacts from Trump’s tariff policy and currency goals on other blockchain-based assets such as stablecoins and perhaps even certain memecoins, but the consequences there are either structural (payments and banking regulation) or fleeting (hype and celebrity mood). Bitcoin, on the other hand, can encapsulate both short- and long-term shifts.
Stablecoins have been promoted by both Administration and Federal Reserve officials as a way to extend dollar influence around the world – but they are representations of the US currency, and as such, will be affected by its global demand. To bring the dollar down, the US needs this to be less, not more, which suggests that stablecoins will be more a payments efficiency and financial innovation story rather than a hegemony play going forward.
So, focusing on Bitcoin as the representation of how the “realignment” impact will play out in markets:
Starting with the speculative, by which I mean short-term price-related narratives, Bitcoin (BTC) tends to move inversely with the dollar (USD). In part, this is mathematical – as the US dollar declines, the BTC/USD ratio goes up. Gold benefits from the same impetus.
Also, the dollar impact leads into a liquidity play. Bitcoin is one of the most sensitive assets to risk sentiment in that it has high volatility, no cash flow and no balance sheet, making it an ideal barometer for how traders are feeling about market inflows. A lower dollar boosts global liquidity as importers and foreign issuers of dollar-denominated debt have more breathing room.
And, the economic hit from tariffs is already eliciting promises of business support from concerned governments. Even in the US, expectations of liquidity injections from the Federal Reserve are climbing as markets teeter. More liquidity leads to more speculation as funds furiously compete for returns, benefitting risk assets.
A longer-term narrative
However, moving on to the store of value thread, expectations of rate cuts could be interrupted by a resurgence of inflation as both tariffs and a lower dollar push up the price of US imports and therefore consumer goods. The Federal Reserve rate-setting committee has coalesced around the need to prioritize inflation control, which suggests that lowering rates is off the table for now given the solution’s proven propensity to exacerbate that particular situation.
When inflation or even just its expectations climb, savvy savers plan for the loss of purchasing power in the base currency. They turn to assets with a limited supply whose worth cannot be debased – such as, gold and Bitcoin.
What’s more, the dollar debasement could be further accelerated through money “printing” by the US Federal Reserve to intervene in markets as instability outweighs inflation concerns.
In sum, the store of value narrative for Bitcoin and gold is a long-term bet on currency debasement, arguably much more likely in the new global reset.
But a store of value has another role, and that is to act as a bulwark against economic uncertainty, especially when fiscal and/or monetary policy is pushing global funds into new territory with unknown outcomes. Put differently, both gold and Bitcoin act as a hedge against “crazy”, of which there seems to be no shortage ahead.
There is one aspect of this implicit value in which Bitcoin has an advantage: seizure resistance. Maintaining the currency arrangement described above will be complicated should the threat of inflation keep rates and yields relatively high. As other countries lower their rates to stimulate struggling economies, higher US yields will attract global investors, potentially pushing up the dollar’s relative value – unless strong inflows could be dissuaded.
One relatively straightforward way to do this would be to make it harder for foreign investors in US markets to take all their money out – such as a tax, an additional fee or transfer limits.
Just as the US will want to restrict foreign inflows, other countries will more likely be imposing rules to restrict outflows. As outlined above, many have already promised stimulus to support businesses affected by US tariffs. The looming money printing around the world suggests currency depreciation ahead, further encouraging a move to less dilutive markets – unless the exits are blocked.
This would encourage a rotation into hard, neutral assets. But flows of physical gold can also be controlled and, should things get really bad, holdings can be confiscated. Digital assets, however, are harder to restrict and/or seize.
The resistance narrative
Finally, moving beyond crypto impacts tied to price, we have the humanitarian angle. Greater geopolitical tension combined with greater economic uncertainty tends to lead to social unrest, which in some societies increases the risk of curtailed banking access and possibly even asset seizure. In times of turmoil, protestors can find themselves marginalized, and even those who would not normally cause trouble may worry about being targeted for their voting record. In such circumstances, seizure-resistant stores of value play a large role in enabling individuals to safeguard their savings and economic access. Gold has historically fulfilled this function – only, logistically it has issues. It is heavy, can be faked, is not trivial to seize, and is impractical in every day economic transactions.
Bitcoin, on the other hand, is comparatively easy to verify, transport, hide and use. Hopefully most of us will never need to rely on its seizure- and censorship-resistant properties – but it’s not unreasonable to expect that building mistrust will enhance the appeal of financial access with inbuilt resilience.
The wheel
To conclude, we are heading into an unprecedented era of macroeconomic and geopolitical realignment, in which the dominance of the United States of America can no longer be taken for granted. Whatever happens, it will continue to loom large over the global economy while providing its reserve currency for years to come – but the radical overhaul of trade policy has placed the evolution of its role at a crossroads and infused markets as well as governments everywhere with new threats as well as strategies.
In times of heightened uncertainty, investors and savers will be doing what they can to look through the fog, hedge downside as much as possible, and protect their independence. In a new economy, new tools take on a greater significance.
What’s more, the support of liquid markets and global access engages the wheel that intertwines the three crypto narratives described above. As net demand for a hard asset increases, so does its price. This further boosts demand and price, benefitting all participants in the network, whatever their motivation.
Of course, no narrative lasts forever, especially when change becomes a constant. But change can itself be harnessed to solve new conflicts that emerge, such as resistance to greater centralization and control.
As I said at the opening: big problems need big solutions which can lead to new big problems. But they also create new opportunities which in turn set the stage for a new equilibrium to emerge. There will always be speculators that benefit; but there will also be scope for longer-term progress in enhancing resilience against an increasingly fragile world.
ASSORTED LINKS
(A selection of reads outside of crypto and macro, although these may find their way in anyway. I try to choose links without a paywall, but when I feel it’s worth making an exception, I specify.)
If you haven’t read any of Nicholas Carr’s work, it is a refreshing yet disconcerting reminder that the convenience of digital communication has a cost. That may feel like a mainstream opinion today, but he started writing about this pre-2010. Erik Larson has written an extraordinary review of Carr’s new book Superbloom: How Technologies of Connection Tear Us Apart, separating how this work differs from his earlier publications. The theme is of course similar: it’s not so much what we’re saying online, it’s how online communication structures what we’re saying. But this time, Carr turns the focus on us, the eager participants in the new formats, and how our recoil from boredom and the “slow thickening of experience” weakens us. (The Last Humanist: Nicholas Carr on What the Digital Age Can't Replace, Colligo)
A moving reminder of the value of reflection and appreciation of the passage of time. We race through life from one milestone to the next – “what gets lost is the chance to feel the transition.” (Why You Need to Slow Down: Lessons from the Vatican’s Room of Tears, The Culturist)
Yascha Mounk argues that the numbers don’t lie: the US is much wealthier than Europe. But he acknowledges that Europe is a nice place to live. On that, I agree. (The Great Divergence, Yascha Mounk)
An excellent piece by Kyla Scanlon on the “kayfabe” (wrestling theatre) of tariff negotiations. Like me, you’re probably getting tired of the victim-speak, the on-and-off, the conflicting signals and the lack of a clear objective. Kyla argues that it’s all part of admittedly vague plan: it’s the concept of justice that matters, the unity delivered by a simple villain outside our borders, and you don’t get good theatre with supply chain logistics. (WWEconomics: Kayfabe and the Trade War, Kyla’s Newsletter)
By now you may have noticed that I tend to gravitate towards well-written pieces on “Culture” (capital C) and its evolution. I haven’t dwelt much on why, to be honest, but it could have something to do with how they sketch out trends in human interaction and motivation. Noah Smith tackles the “stagnation” many of us, cough, not-young people grumble about, and suggests that it’s to do with the physical and conceptual limits of innovation, the straight-to-public disintermediation, and the shift from art to entertainment. In sum, it’s the technology. There’ll be plenty you disagree with in here, but he raises some good points. And I now know that “shoegaze” is a rock genre. (Why has American pop culture stagnated?, Noahpinion)
Robot fashion is probably something you haven’t given much thought to. You should, because it’s not just aesthetic, it’s also practical. (Filtered for the rise of the well-dressed robots, Interconnected.)
The Economist gets a lot wrong (such as this week’s cover story on crypto corruption, Daniel Batten has some great rebuttals) – but it is still influential, at least in Europe, so it is astonishing to see it criticize the erosion of free speech in the EU and the UK. (Europe’s free-speech problem, The Economist, paywall)
HAVE A GREAT WEEKEND!
(in this section, I share stuff that has NOTHING to do with macro or crypto, ‘cos it’s the weekend and life is interesting)
Over the past few weeks, I’ve shared a couple of my favourite contenders for the Eurovision 2025 song contest – Estonia and Sweden.
Tonight is the grand final, and I’m happy to report both made it through the semi-finals (which themselves were wracked with drama). If you’ve never seen the show, I thoroughly recommend it unless you like to take life seriously – it’s glorious in its spectacle and ridiculousness, and there is occasionally some excellent music. This year there’s also a larger amount than usual of innuendo, as it is the 69th Eurovision. And I’m still puzzling over what seems to be a unusually strong presence of accordions.
Today I’m going to share three other entries I like, that highlight the astonishing range of styles while capturing the theatre and charm of the concept. It seems that more entrants than usual this year are singing in their home language, which I’m totally in favour of – the whole idea is about cultural diversity in music.
Latvia – a modern take on their folk traditions.
San Marino – it would be hilarious if they won, since that would mean the microstate has to host the event next year and I’m not sure it’s big enough.
Switzerland – one of the front-runners to win, it’s refreshingly pretty. But surely they can’t win two years in a row? Actually, they could – in the early ‘90s, Ireland won three Eurovisions back-to-back.
My vote goes to Sweden, however, whose official video I shared a couple of weeks ago. It’s fun. In case you missed it, or liked it as much as I do and wouldn’t mind seeing it again, here’s the recording of their performance in this week’s semi-final.
DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.