Macro Update

Last week, Bitcoin surged 7% to $83,700, navigating an increasingly volatile macroeconomic landscape marked by shifting global trade dynamics, financial market turbulence, and mixed policy messaging.

CPI increased by 2.4% year-over-year (YoY), below economists’ expectations of 2.6%, and down from February’s 2.8%. Month-over-month, CPI declined by 0.1%, the first monthly decrease since May 2020. Annual core CPI rose by 2.8%, marking the smallest yearly increase in nearly four years and signaling a cooling inflation. Similarly, the Producer Price Index (PPI), which measures wholesale inflation, rose by just 2.7% YoY in March, easing from February’s 3.2% and below the 3.3% forecast, reinforcing signs of broader disinflationary pressures. However, despite this progress toward the Fed’s 2% inflation target, the recent escalation in global trade tensions introduced new potential inflationary risks, which are not yet reflected in March’s data. 

The ongoing global trade war’s ripple effects are amplifying risks of both inflation and economic slowdown, with analysts estimating a 60% chance of a global recession by year-end if tensions persist. Typically, during periods of heightened uncertainty, capital flows into safe-haven assets such as long-term U.S. Treasury bonds. However, markets are witnessing a sharp, disorderly sell-off of Treasuries instead. The 10-year Treasury yield surged to 4.5%, a 12% weekly increase, and the 30-year yield climbed to 5%, a 10% weekly rise, marking the largest weekly yield spike since 2022. This sell-off’s intensity may have been amplified by the unraveling of the basis trade, a strategy where hedge funds exploit small price differences between Treasury bonds and futures contracts. The trade, which thrives on predictable markets, relies on heavy borrowing (sometimes up to 50-100x capital) to magnify modest profits from these gaps. However, recent tariff-driven volatility may have caused losses on funds’ bond holdings, triggering margin calls and forcing sales of Treasuries to cover debts. These sales would add downward pressure on bond prices, pushing yields higher and amplifying the very volatility that sparked the unwind. Compounding the challenge, new tariffs could raise import costs and fuel inflation, pushing investors to seek higher yields to compensate for anticipated purchasing power erosion. This dynamic leaves the market in a bind: Treasuries are losing value amid rising yields, while equities may remain unappealing against recession fears. Amid these developments, the Fed faces a delicate balancing act: while economic softening would normally warrant monetary easing, tariff-driven inflation risks could delay rate cuts, raising stagflation concerns. At the same time, the rise in bond yields is tightening financial conditions by pushing up borrowing costs across the economy, even without additional Fed action, thereby potentially deepening the economic slowdown.

Against the backdrop of a deteriorating macro outlook, on Wednesday, the U.S. paused reciprocal tariffs for most countries, reverting them to the 10% baseline while simultaneously escalating tariffs on China to 145%. China retaliated on Thursday by raising tariffs on U.S. goods from 34% to 125%, imposing export controls on rare earth minerals, and adding 27 U.S. companies to a trade sanctions list. Although the E.U. had also prepared retaliatory measures, it announced a 90-day suspension to allow negotiations following the U.S. tariff pause. However, in continuation of the U.S.’ evolving tariff stance, President Trump clarified on Sunday that certain Chinese goods, specifically smartphones, computers, and other tech devices, representing approximately 23% of the $460 billion in Chinese imports recorded in 2024, were not subject to the 145% tariff but instead remain under previous tariff structures, generally around 10–35%. Since the effective tariff rate is lower than markets initially feared, this move potentially eases immediate inflationary and economic risks while also alleviating pressure on the bond market. 

As a result, while markets tumbled earlier in the week, sentiment shifted dramatically following the U.S. pause on reciprocal tariffs. The Nasdaq soared 7.3% for the week, its best weekly performance in over a year, driven by a 12% single-day surge on Wednesday, the second-largest daily gain in its history. Meanwhile, the S&P 500 rose 5.7% for the week, supported by a 9.5% jump on Wednesday, which ranked as the eighth-largest single-day percentage gain on record for the index. While these sharp gains partly reflect a rebound from tariff-driven losses, the magnitude of the rally is still notable, as it underscores the market's risk appetite and forward-looking optimism.

Our take: While the S&P 500 and Nasdaq plunged to their lowest levels in over a year, and long-term bond yields surged to peaks seen only three times since 2007, Bitcoin’s decline was comparatively modest, revisiting price levels from around the U.S. election period. This marks a notable shift from its historical behavior in crisis situations, when Bitcoin’s losses far exceeded those of TradFi indices, highlighting its apparent growing resilience amid macroeconomic turbulence.

Crypto Market Update

The cryptocurrency market mirrored the volatility of traditional financial markets last week, shifting from fear to relief as the U.S. announced tariff reductions. This turbulence led to over $2.5 billion in weekly liquidations on centralized exchanges, the largest since February. Earlier in the week, Bitcoin plummeted to its lowest level since the U.S. elections, amid escalating global trade tensions. However, a subsequent policy adjustment triggered a sharp rally across risk assets: Bitcoin rebounded to $83,700, securing a 7% weekly gain, while Ethereum edged up 1% to $1,600. The ETH/BTC ratio dropped to 0.019, its lowest level in five years, highlighting Ethereum’s continued underperformance relative to Bitcoin. Similarly, the SOL/ETH pair rose by 20%, fueled by Solana’s surge from its local bottom. The broader market recovery was also reflected in the GMCI30 index, which posted a 7% net weekly gain.

On the other hand, ETF investors displayed continued caution, as spot Bitcoin ETFs saw $700 million in outflows, with BlackRock’s IBIT shedding $343 million and Grayscale’s GBTC losing $160 million. Similarly, Ethereum ETFs recorded $80 million in negative flows. Despite the recent downturn, spot Bitcoin ETFs and spot Ethereum ETFs AuM currently stand at $103 billion and $5 billion, respectively. Last week also marked expansion in Ethereum-based ETF products, with multiple issuers, including BlackRock, Grayscale, and Bitwise, launching options trading on spot Ethereum ETFs. Looking ahead, several firms are seeking approval to include staking in their Ethereum ETFs, with the SEC expected to issue a final decision by October 2025. 

In another sign of regulatory momentum, the Teucrium 2x Long Daily XRP ETF (XXRP) launched last week as the first XRP-based ETF, designed to deliver twice XRP’s daily price performance. This debut aligns with rising interest in XRP products as issuers like Grayscale, WisdomTree, and Bitwise pursue spot XRP ETFs, potentially bolstered by the favorable resolution of the SEC’s lawsuit against Ripple Labs.

Our take: Bitcoin’s resilience during the recent market downturn, alongside sustained institutional interest evidenced by significant ETF inflows over the past year (despite recent outflows), suggests it may continue to outperform Ethereum unless major catalysts like the Pectra upgrade and potential Ethereum ETF staking approvals bring substantial traction to Ethereum.

Stablecoin Update

Last week, Tether signaled plans to expand its stablecoin offerings beyond USDT, which is widely used for digital asset trading and as a digital dollar alternative in regions with unstable local currencies. The new stablecoin will be U.S.-exclusive, targeting institutional clients to enable faster interbank settlements. Currently, Tether does not directly serve U.S.-based customers due to regulatory restrictions and past compliance challenges, and the new product likely aims to capture a larger share of the U.S. market, starting with the institutional clientele. The move follows an evolving U.S. regulatory environment for digital assets as lawmakers currently review two stablecoin bills: the STABLE Act and the GENIUS Act, which, although not yet enacted, signal the potential for greater regulatory clarity that could boost market confidence and adoption.

Tether’s push for a new stablecoin comes amid intensifying competition, particularly from Circle’s USDC. The stablecoin market cap soared 15% in 2025 to a record $233 billion, with USDC fueling much of the growth by adding $16 billion compared to USDT’s $7 billion increase. On Ethereum, the stablecoin market grew from $110 billion to $123 billion, where USDC drove most of the gains, boosting its market share from 26% to 30%, while USDT’s share slipped from 56% to 52% as its value held steady at $64 billion. Solana’s stablecoin market also surged from $5.3 billion to $12 billion, largely driven by USDC’s $5.2 billion jump. In contrast, Tron’s stablecoin market, often used for cross-border payments, rose from $61 billion to $67 billion, almost entirely driven by USDT. USDC’s faster growth in crypto-native ecosystems like Ethereum and Solana stems from its stronger regulatory compliance, which builds trust with institutions and DeFi platforms wary of scrutiny, and its deep integration into decentralized finance protocols for lending and trading. Meanwhile, USDT’s market share is eroding, impacted by U.S. regulatory barriers and its recent compliance-driven delisting from Binance in the European Union following the implementation of Markets in Crypto-Assets (MiCA) regulations.

Our take: Circle’s looming IPO, bolstered by a pro-crypto U.S. regulatory environment, positions USDC to capture substantial TradFi institutional interest. Tether’s new push toward launching a U.S.-exclusive stablecoin aimed at institutional settlements introduces a formidable rival that could chip away at USDC’s dominance in the U.S. The current stablecoin landscape is polarized: USDC and USDT are in a dominant tier with a combined market share (of over 80%) while smaller competitors fighting for the number 3 spot. The major catalyst for the structure disruption could be rapid scaling in the RWA sector, which could elevate Ethena stablecoins' market share.