Trump Bump Fast Turning Into Slump Dump on Recession Bets
Bitcoin crashed below $80,000 again after doing so on February 28 as US President Donald Trump's Bitcoin reserve disappointed markets and weighed on cryptos broadly.
Unfortunately, most digital assets have been selling off for several days, and neither the inaugural Crypto Summit at the White House on Friday evening nor President Trump's Strategic Bitcoin Reserve executive order has helped to increase prices.
Can a new catalyst calm a nervous market, or is another bear phase actually here?
Once again, the sell-off was accentuated over the weekend after a bad week for cryptos and global markets. Sentiment remained sluggish, driven by macro headlines taking centre stage.
Bitcoin ETFs saw daily outflows worth over $400 billion on Friday, with Daily Total Net Open Interest (Delta) at -$350.35 million, which suggests that market makers need to sell underlying assets to hedge their positions, resulting in the sale of more ETFs, according to SoSoValue data.
Following President Trump's long-awaited decision to establish a strategic Bitcoin reserve and an additional stockpile of other digital assets, a previously simmering rift in the crypto industry erupted.
Bitcoin dropped even as heavy hitters in the crypto industry gushed over Trump's reserve move on social media.
Ether, XRP, Cardano, and Solana - the four other digital tokens that Trump had highlighted, also declined in value.
Crypto stocks declined in line with Bitcoin, with MicroStrategy crashing over 15% and Coinbase sliding about 11%, both reflecting lower crypto prices.
Cross Asset Rout Picks Up Steam
Last week, investors across various asset classes suffered their worst weekly losses since the Federal Reserve's monetary-tightening campaign in 2023.
Numerous factors, including tariffs, slowing GDP, and perhaps revitalized Europe, are to blame.
The R-word is causing a lot of heartache.
Some market observers are concerned about the effects of the uncertainty on the economy, and they are keeping a close eye on the situation, with bets of a recession surging across betting markets among economists and traders.
That selloff from last week deepened further on Monday, with US benchmark stock indices sinking after Trump deflected on whether or not his tariff proposals would cause a recession, unsettling investor sentiment.
Following last week's confirmation that the Nasdaq's decline from December's record high was a correction, the index fell further by over 4%.
The Nasdaq index also marked its worst day since 2022 as $1 trillion zapped on Monday.
The technology-centric Nasdaq Index temporarily entered a correction on Friday, having declined over 10% over 17 days. Nvidia has lost nearly $1 trillion in market capitalization over the past two months.
The Magnificent Seven equities are declining as the overall market downturn escalates.
Tesla has nearly eliminated all of its post-election gains.
The S&P 500 fell more than 3%, bringing the total loss to around 9% from a record high on February 19.
The index has erased all gains accrued since Trump's election in November.
The S&P 500 closed below its 200-day moving average, a significant support threshold, for the first time since November 2023.
Wall Street stocks ended sharply lower on Monday on concerns that the country's economy could be about to enter a recession due to ongoing trade disputes and growing fears of a government shutdown.
S&P 500 Benchmark Index
The sentiment in markets is undoubtedly detracting from the president's "America First" ethos, as the initiative to significantly increase government expenditure in Germany and the rise of AI firm DeepSeek in China are attracting both attention and capital abroad.
The S&P 500 has lagged behind global performance, and the United States' proportion of world market value has declined since exceeding 50% earlier this year.
In order to stay up with the relentless rally for two years in a row, stock-market forecasters kept raising their S&P 500 targets.
Strategic analysts at financial institutions such as JPMorgan Chase and RBC Capital Markets are beginning to tone down their optimistic projections for 2025, just three months into the year, due to the fact that Trump's tariffs have caused US stocks to plummet and heightened concerns about a slowdown in economic development.
On Thursday, JPMorgan's strategy team cautioned that the 6,500 S&P 500 they had predicted for the end of the year, representing a gain of about 13% over Friday's finish, might not come to fruition.
After originally predicting 5,775 points for the S&P 500, RBC's Lori Calvasina now has it pegged at 5,600.
Markets are experiencing significant volatility.
The Volatility Index, which gauges anticipated fluctuations in the S&P 500 over the coming month, increased last week to a level never observed since the COVID-19 period.
On Monday, Wall Street's "fear gauge," the CBOE Volatility Index, rose 3.6 points to 27, the highest level since December 18.
Two-year Treasury yields have declined significantly due to speculation that the Federal Reserve may recommence reducing interest rates.
The dollar is currently approximately 4% below the post-election peak attained in January and declined last week to its lowest level since November.
JPMorgan experts currently estimate a 40% probability of recession this year due to stringent US regulations.
In recent weeks, escalating trade tensions and signs of slower US economic growth have impacted consumer confidence and corporate activity, leading to volatile financial markets.
Recent Wall Street selloffs have hit highly valued US tech stocks particularly hard.
The significant influence of market gains on Americans' perception of prosperity in recent years has bolstered consumption.
According to Federal Reserve data, equity holdings constituted 64% of US households' financial assets last year, a record.
People with a lot of money invested in the market have the "wealth effect": they spend more when their assets are doing well and less when they're worried.
Although the current losses may not warrant widespread concern, the significant decline in value is serving as a warning that the markets could trigger economic instability if they maintain their current downward trajectory.
The danger of shrinking market wealth is very serious in today's top-heavy business cycle when the wealthiest 10% of American households control half of the stock and spend nearly half of the country's consumer expenditures, which are worth around $23 trillion.
Consumer spending falls by 2 cents for every dollar, and their net worth drops.
With consumer spending slowing and indicators from the housing market to the labour market showing signs of deterioration, it is a discouraging figure, especially considering that $3.7 trillion was erased from stocks in the last few weeks.
Markets for stocks, bonds, currencies, and other assets have recently seen heightened volatility.
This raises the question of whether consumers who own assets may feel uneasy due to the stress on Wall Street.
It adds to the uncertainty surrounding tariffs and government dismissals, which have already weighed on the economy.
Recession Risks Surging?
According to a Reuters poll, nearly all experts—91%—believe that Trump's changing trade policies increase the likelihood of a recession.
HSBC echoed this sentiment, lowering its rating on US stocks due to tariff concerns.
As his initial emphasis on tariffs and federal job cutbacks causes market turbulence, Trump has suggested that the US economy is going through "a period of transition," avoiding questions about the possibility of a downturn.
A higher Japanese yen and a surge in government bond yields put pressure on tech companies. Investors are unwinding yen carry trades in anticipation of a possible interest rate hike in Japan soon.
In carry trades, investors borrow cheap yen and use it to buy assets or currencies with higher yields.
The barrage of muddled tariff-related announcements reached a new disruptive level last week, sending market sentiment tumbling and prompting a reaction from Wall Street.
Bond traders have upped their bets on rate cuts, but Fed Chair Jerome Powell cautioned Friday that authorities shouldn't rush to change policy due to heightened uncertainty in the economic outlook.
The market saw its worst all-asset selloff since October 2023, with major ETFs tracking equities, Treasuries, and corporate bonds losing an average of 2 percent.
Another factor to consider is that pain in speculative market corners is becoming increasingly difficult to ignore.
Many so-called alternative cryptocurrencies and leveraged exchange-traded funds (ETFs) linked to individual equities, such as Tesla, which are popular among novice investors and those looking to get rich quickly, have seen their value fall by more than 50% so far this year.
Crypto and its erratic relatives are owned by an especially ostentatious class of investors. Compared to bonds and stocks, digital assets have a very small pool of capital—at their peak, they were nominally worth $3.7 trillion.
Last year, researchers found that this was especially true in the California and Nevada real estate markets.
A dollar in unrealized crypto gains caused its owners to spend nine cents more than they had originally planned.
Elsewhere
Blockcast
Jess Zeng entered the crypto industry as an intern at Gemini while studying finance at SMU. She then moved on to work at Chainlink, where she transitioned from a business development role to an ecosystem-building focus.
After a stint at Fireblocks to gain institutional experience, she joined Mantle , where she now leads ecosystem growth for mETH - the liquid staking platform backed by Mantle.
Previous episodes of Blockcast can be found on Podpage , with guests like Samar Sen ( Talos), Jason Choi (Tangent), Lasanka Perera (Independent Reserve), Mark Rydon (Aethir), Peter Hui (Moongate), Luca Prosperi (M^0), Charles Hoskinson (Cardano), Aneirin Flynn (Failsafe), and Yat Siu (Animoca Brands) on our most recent shows.
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