Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

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Topics covered:

• No More TACO’s for Trump?
• How's Bitcoin Holding Up Under the Hood?
• Cryptonary's Take.

No More TACO’s for Trump?

After a week of mixed messaging, where President Trump claimed on Monday that should the Strait of Hormuz not be re-opened immediately, then the US would "destroy Iran's electric generation plants, oil wells, Kharg Island, and possibly desalination facilities". This preceded claims from President Trump that the Iranians had reached out in the hope for a ceasefire, however, this was denied by the Iranians who have been passing messages to intermediaries in hope for a full ending of the war, but with concessions, that the Americans are unlikely to agree to.

President Trump then addressed the nation (the US) last night, where he threatened to bomb Iran "back to the stone age", should "they not make a deal". The President also said that the US would likely be another 2-3 weeks in Iran and that they're "very close to finishing the job in Iran". However, this came after the UK and Australian Prime Minister's delivered 'batten down the hatches' addresses to their own nations in response to the potential (economic) impacts of this war. This, along with the large military buildup in the Middle East (the US have sent another aircraft carrier to the Middle East which'll take 3 weeks to arrive) suggests to us that this war may go on longer than the 2-3 weeks that Trump touted last night.

Ultimately, in President Trump's national address speech yesterday, he repeated a lot of what we already know. And given the fact that the US continues to move military personnel and equipment into the region, whilst saying that the Iranians "are desperate for a deal", which the Iranians are categorically denying, this suggests escalation and a potential US ground invasion of a strategic Iranian island (in the Strait) in the near-term.

And potentially most importantly for markets, President Trump didn't mention a ceasefire or a "winding down" of the war. This led to a risk-off reaction in markets.

• Bitcoin pulled back from $68k, into the mid-$66k's.
• The Nasdaq pulled back 2% in after hours trading.
• The Dollar (DXY) was bid back above 100.
• US Bond Yields rose, with the US2Y up 11bps off yesterday's lows (on inflation fears).
• Brent Crude Oil was bid up to $112, from $102 in yesterday's session.

Brent Crude Oil 1D Chart

This price action suggests that the market is pricing in a more prolonged war with a near-term deal or ceasefire unlikely.

When we look at the facts, the US and President Trump have two options here:

1. De-escalate and walk away.
2. Escalate and win.

Option 1 would be disastrous. Yes, the Iranians might be set back in their nuclear weapons development, but, they'd control the Strait of Hormuz which would keep the price of oil elevated and negatively impact global growth. They'd also see that they haven't been defeated, encouraging them to continue building up their weapons arsenal and continuing their pursuit of nuclear weapons. Plus, the regime would be more hardline than it was before Supreme Leader Ali Khomenei was killed. This would be a disastrous outcome, likely only meaning Option 2 remains.

Option 2: escalate and win.

Of course, the US could escalate and lose, but the likelihood is that they would out-gun the Iranians and win. This would likely result in the Strait of Hormuz being re-opened and potentially even the control of oil flow through the Strait should the US hold and occupy a key island in the Strait, and the replacement of a hardline regime that isn't seeking to build nuclear weapons.

Option 2 doesn't necessarily mean a full ground invasion, and that's not our base case. But a ground invasion of a key strategic island in the Strait might be the most likely outcome now.

This provides a lot of uncertainty for markets, especially as there have now been the attempts to de-escalate and 'walk away' that haven't been fruitful.

Our base case is that the Iran war escalates in the near-term via boots on the ground (more likely on an island in the Strait that gives the US some control in the Strait), and risk assets will be negatively impacted by this.

How's Bitcoin Holding Up Under the Hood?

Despite escalating geopolitical tensions, Bitcoin has remained range-bound between $65k and $72k, which is interesting considering equities have broken down from their range in the same timeframe.

Underneath the hood, Bitcoin has seen mixed ETF flows that have mostly been net neutral, with the total volume being relatively low.

Bitcoin ETF Flows

Alongside this, the Coinbase Premium has been negative since mid-March, meaning a lack of demand from US investors for Bitcoin. This, along with minimal ETF flows has seen Bitcoin trade from the low-$70k's into the mid $60k's today.

Bitcoin Coinbase Premium

All-in-all, Bitcoin has held up under significant geopolitical tension that has seen equities (S&P and Nasdaq) break down from their ranges, whilst Bond Yields and the Dollar have surged higher. This is historically a poor environment for risk assets, so with Bitcoin then remaining range-bound under the pressure of this environment, performance wise, it doesn't seem too bad, particularly as sentiment is at bottom lows.

Crypto Fear & Greed Index

Cryptonary's Take

The war in the Middle East continues to dominate markets as it risks higher oil prices and then higher inflation, and then lower growth. Risk assets are trading negatively in this environment as Bond Yields and the Dollar move higher, and as a result, tighten financial conditions.

President Trump addressed the nation yesterday evening, and did little to calm markets by not committing to an end-date for the war other than "very soon", whilst his speech seemed to be preparing the American people that 'all is well', despite a potential escalation being likely to come in the near-term. And with the stock market being closed tomorrow (Good Friday), the extended weekend gives President Trump several days to escalate. You have to ask yourself for today's trading session (Thursday), who's going to want to be holding risk going into the extended weekend following President Trump's address yesterday evening?

For now, the environment for risk assets remains poor and therefore we remain overweight to cash.

Key Dates Ahead

• April 3: Labour market report.
• April 10: CPI report.

This content is for informational and educational purposes only. Cryptonary is not authorised or regulated by the Financial Conduct Authority (FCA) or any other financial regulatory body. Nothing in this publication constitutes a personal recommendation or advice to buy, sell, or hold any virtual asset. Virtual assets may lose their value in full or in part and are subject to extreme volatility. You can lose all invested amounts and do not benefit from any form of financial protection. Past performance does not indicate future results.