Market Updates

Tariffs, markets & crypto: Breaking down Trump’s high-stakes play

Published: Feb 3, 2025

Good afternoon, all. Trump has produced another weekend whirlwind. Let's dive into it all, what we're expecting this week, and how we're playing it.

In this report:

Data This Week.
Trump's Tariffs and their Affect on Markets.
What Happens Next?
Crypto and Memes.
Cryptonary's Take.

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.

Data this week

It's important to cover this section and know what's coming up on the data releases this week, but we'll keep this section super light as the focus, for now, is tariffs and their effects on markets.

This week, we have job data. JOLT's Job Openings are on Tuesday, and then Non-Farm Payrolls and Unemployment Rate are on Friday. The expectation is for JOLTs to come in slightly lighter, Non-Farm to come in slightly lighter, and Unemployment to come out at 4.1%, so there is no change.

If we see these figures, markets would likely be pleased with that, but it might not result in a drastic rally, as again, the market focus this week is mostly on Trump and the tariffs being implemented.

Trump's tariffs and their effects on markets

On Saturday, President Trump announced new tariffs going on Mexico, Canada and China. These countries make up nearly 50% of US imports.

The tariffs on Mexico and Canada are said to be 25%, although energy exports will be at just 10%. The Chinese will also see a 10% tariff on their imports to the US. Note there is potential for further tariffs beyond this.

A lot of the talk has been around how the tariffs might be very inflationary, but we'd argue against this. Tariffs are a one-time price increase, and therefore, this is actually transitory inflation. Inflation is when prices are gradually moving higher. A one-time price hike isn't that (inflation).

The concern we'd have here is that tariffs could cause a growth scare/shock. This is simply due to prices being much higher and therefore leaving little margin for businesses.

Now, a growth scare/shock would likely be resolved with QE and rate cuts, but first, you need the growth shock - and the market to show that shock in its valuations. We're arguably seeing the market start to take a growth scare more seriously now. This is how the market is taking these tariffs:

$DXY 1D timeframe:

The Dollar is up massively, although it was sold at the highs of 110.

aligncenter size-full wp-image-307566 1. U.S. Dollar Index daily chart shows a strong uptrend post-election, RSI moving higher, indicating bullish momentum, resistance near 110 level.

$S&P 1D timeframe:

The S&P has gapped down and is trading down 1.6% pre-market. Let's see if this recovers in the day. There's a possibility for this; we'll dive into it below.

2. S&P 500 E-mini daily chart displays a pullback, RSI declining, reflecting market weakness, uncertainty, and potential further downside risk.

$NDX 1D timeframe:

The Nasdaq has also gapped down and is down 1.90% pre-market.

3. NASDAQ 100 E-mini daily chart shows a sharp decline, RSI weakening, indicating bearish pressure with market correction risks intensifying.

$BTC 1D timeframe:

BTC pulled back substantially whilst Alts and Meme's were battered over the weekend as Crypto was the only liquid market that was open. So, we've seen risk-off in response to tariffs, and Crypto, being the only market open, was hit hard.

4. Bitcoin daily chart shows a breakdown, RSI declining, key support levels near $80,000 highlighted, signaling further downside risk in crypto markets.

What happens next?

There are many moving parts here that make this difficult to digest, and that'll be a situation that can turn on a dime, so we'll constantly have to assess it.

But what we're watching and assessing here is the following:

1. This doesn't seem to be a bluff from Trump as the tariff numbers are big (percentage speaking), and they've been implemented quickly. However, perhaps the purpose of going big straight away is to make it painful for everyone, and that, in turn, brings everyone to the negotiating table, and that actually results in a deal being done quicker.

2. Trump is on a call with the leaders of Mexico and Canada today. If deals are struck today (unlikely, but possible), then we could see this negative market reaction turn around today.

This is unlikely, though. The longer Trump holds out, the more chance there is of securing better deals for him and the US.

3. What's the narrative around China? Currently, it seems that there's a softer narrative coming out of China, which suggests they're open to doing a deal, and this might prevent Trump from being aggressive with them from the get-go.

Remember, the US and the Chinese both need a deal. The likely result will be that the US gets an improved trade deal, and as a result, weakens the Dollar.

This would then allow the Chinese to stimulate their crippled economy, but also on the condition that they don't keep devaluing the Yuan. But they'll need the Dollar to weaken in order for this to happen.

As we said above, a lot of this can change on a dime, so we need to be alert and assess this every day, and we will be.

Crypto & memes

As we mentioned above, Crypto has been clobbered over the last few weeks, particularly over the weekend, as it was the only liquid market that was open.

However, the fear/capitulation we've seen on the timeline over the last few days, alongside the fact we've probably seen the biggest ever $ liquidation event in Crypto history. The ByBit CEO suggests it's somewhere between $8-10b, far more than the $2b reported by Coinglass.

Currently, Majors have pulled back substantially, but BTC and SOL are still holding their structures, so this isn't that bad. What would be bad is if these tariffs remain, no deals are struck, we see a growth scare, and risk-on assets continue to bleed.

For now, we favour cash (USDT/USDC) and some small sizes in Majors (BTC and SOL). If you're still heavy in memes, you should have been de-risking over the last few weeks.

If you haven't yet de-risked, SPX looks to be the one that's most attractive to de-risk. It's still at a large MCap, and we're now seeing POPCAT at $200m MCap. SPX is at $700-800m MCap, so why couldn't that go and match POPCAT? That would be another 75% decline.

Now, we're not calling for that specifically, but it's an example of how things can get worse, even when they feel terrible already. This is something to think about.

Better to have capital remaining to take advantage of new opportunities that can 10-100x when better market conditions return than sit in an asset now that could potentially continue to bleed.

Cryptonary's take

We really suggest reading the full report today. We're seeing close to max fear across the board, and this is also paired with a huge liquidation event to the downside. These are usually good opportunities to get Long again. However, with Trump and these tariffs, the markets will likely remain cautious until there is further clarity around the tariffs.

But expect risk-on assets to rip if and when deals get done. The issue is how long these deals take, and with this seemingly being early in this process, it's possible that risk assets continue to bleed until deals are done.

For now, the sensible move would likely be to remain in cash rather than knife catch. If we start to see positive developments on the Trump tariffs/negotiations, then we'll look to get risk on again.

All to play for here, remain patient for now.