Fearless Wall Street Traders Refuse to Panic But Tariff Risks Hit Crypto Hard

It turns out tariff time isn't here yet.

Still, cryptos have taken a bigger hit, with digital assets investors largely on the sidelines despite a friendly administration.

Bitcoin has largely traded sideways within a range but below the $100,000 mark.

Although we are just about two months into the new year, a few noteworthy trends have emerged from Wall Street activity that should be closely monitored.

Inflation fears have returned in the Donald Trump administration, making consistent market trends all the more difficult to discern.

At times, the correlation between stocks and bonds is so strong that conventional money managers are considering new ways to diversify their holdings.

The buy-and-hold crowd is feeling very combative right now.

Recent movements in various asset classes such as cryptos, stocks, and bonds indicate a deviation from normalcy.

The swings are attributed to Trump's volatility-driven policy plans, which include tariffs, deregulation, tax cuts, and government worker buyouts.

The normally solid economic backdrop is also at risk from Trump's 'shock and awe' plans.

Recent worrying inflation data has only served to further cloud the situation.

The Fed's rate cut cycle predictions were disrupted by hotter-than-expected consumer prices, leading to a surge in treasury rates and a decline in markets.

Despite the robust reading of the US producer price index, speculators found solace in the weaker components of the index, leading to a turnaround in both bonds and stocks on Thursday.

This is not a normal behaviour.

However, the activity in the options market indicates that Wall Street traders are not expressing any concerns. Last week, the CBOE Volatility Index, which measures the pricing of S&P 500 options, fell and is now close to its January low point.

A similar stress gauge for debt showed a decline to a two-month low.

Both stocks and bonds have moved in tandem in recent weeks to show positive returns for the year, suggesting portfolios are not making money.

Despite the recent bewildering market trends, passive funds, which have consumed trillions of dollars in investments, seem poised for a comeback.

In contrast to their stock-picking counterparts, these managers have benefited from the re-emergence of themes during the most recent turmoil.

The market-weighted S&P 500 is outperforming its equal-weight counterpart, growth stocks are decimating value equities, and small caps are struggling.

There had been indications that active managers' prospects were looking up until early last week, when each move halted the trend.

This is good news for the billions of dollars that investors have been pouring into exchange-traded funds tracking the S&P 500 and the Nasdaq 100.

However, the market is experiencing more reversals, whiplash, and confusion regarding cryptos.

No trend is sticking for the digital asset markets.

What this tells us is that the price action for all the good news that should have driven cryptos higher has already been priced into the highs.

Now, the risks to that price action are being front-loaded before any of the bigger drivers start to show a consistent move higher.

SoSoValue data shows net inflows into Bitcoin ETFs remain positive with the cumulative total net assets at $114.41 billion as of Friday.

However, the options data suggests that more positions were closed than opened, indicating a weakening trend or reduced market activity.

According to SoSoValue, the daily total net open interest (Delta) for US Bitcoin spot ETF options as of Thursday was -$120.7 million.

The trend shows market makers are selling underlying assets to hedge their positions, and more Bitcoin ETFs are being sold.

The flavour of the season is clearly Trump and his antics.

What is not helping cryptos is the expected boost from rate cuts that is starting to appear far in the distance, with the can of easing being kicked down the road as each day passes by.

The other boosts to risk assets and reversals in trades have not done much for cryptos.

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