Market Reactivity  

Markets have been hit with severe volatility due to ongoing geopolitical and macroeconomic uncertainties. To start the week, Trump announced tariffs on the EU, which, combined with already weak market sentiment, sent Bitcoin down to $78K. Later in the week, he revealed plans for a U.S. strategic crypto reserve, proposing to include top U.S.-based altcoins like SOL, ADA, and XRP. This triggered a sharp rally, with these assets surging over 50%, lifting the broader market with them.

Bitcoin Price Chart

- This weeks volatility highlighted

However, within 24 hours, those gains were erased as tariffs on China, Canada, and Mexico came into effect and geopolitical tensions escalated further when Trump withdrew funding for Ukraine, adding to the market’s uncertainty. Markets despise uncertainty, and we are currently experiencing extreme levels of it, reflected in the recent sharp price swings.

We can draw parallels to the volatility of July-October 2024, when Iran-Israel tensions drove sharp weekly market swings. While the current environment poses challenges for markets, it also offers opportunities. Many headlines amplify fear, often unsettling investors, but this can create openings for those who look past the noise.

Weekly Price Update

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Crypto Summit on March 7

The upcoming March 7 Crypto Summit at the White House, featuring Donald Trump and tech investor David Sacks, has rapidly become one of the most anticipated events in the crypto space. Attendees will include prominent founders and CEOs from the crypto space, including Brain Armstrong from Coinbase and Micheal Saylor. Excitement around the summit has surged following Trump's recent tweet about establishing a U.S. Strategic Reserve for digital assets, sparking speculation that the event could bring a major policy announcement. Many investors are hoping for a definitive confirmation that the reserve will go forward, but in reality, any formal implementation would still have to pass through Congress and multiple regulatory hurdles before becoming a reality. At best, we might see a roadmap or a commitment to further discussions, but a finalised plan seems distant.

Beyond the strategic reserve, another key topic is expected to be U.S. crypto asset policies, tax exemptions, and broader efforts to position the U.S. as a global crypto hub. Trump has indicated interest in driving innovation and making the U.S. a leader in blockchain development. A major incentive being floated is the removal of capital gains taxes for crypto investors, which, if implemented, could attract both developers and institutional capital to the U.S. However, we are skeptical that such a drastic tax break will be fully approved or even seriously discussed at this stage - it’s an enticing idea, but politically challenging.

One particularly curious aspect of Trump’s digital asset reserve proposal was his mention of ADA, XRP, and SOL - all U.S.-based assets but with questionable reputations in different ways. ADA and XRP, in particular, have been polarizing within the crypto community due to past legal battles and debates over their viability. This raises some intriguing questions: Why these assets? Could there be behind-the-scenes deals, bribes, or free token allocations to secure a spot in the reserve? It’s impossible to say for sure, but the choices feel strategic rather than purely fundamental. Regardless, the summit will be a defining moment in U.S. crypto policy, and the market will be watching closely for any regulatory shifts or institutional signals coming out of it.

BlackRock's Bitcoin Model Portfolio

BlackRock, the world's largest asset manager, has incorporated its iShares Bitcoin Trust (IBIT) into its model portfolios that allow alternative investments. This strategic move signifies a notable shift in institutional acceptance of digital assets, reflecting a broader trend of integrating cryptocurrencies into traditional investment frameworks.

By including IBIT in these portfolios, BlackRock acknowledges Bitcoin's growing legitimacy as an asset class and responds to increasing client demand for diversified investment options. This integration not only provides investors with regulated and familiar avenues to gain Bitcoin exposure but also enhances the asset's credibility within mainstream finance.

BlackRock’s model portfolio allocation to IBIT ranges between 1% and 2%, demonstrating a measured yet meaningful commitment to Bitcoin as part of a diversified investment strategy. While the percentage may seem small, given BlackRock’s massive scale, even a modest allocation could drive substantial institutional inflows into Bitcoin. As BlackRock itself put it: “If every millionaire in the US asked their financial advisor to get them 1 Bitcoin, there wouldn’t be enough.” This endorsement from the world’s largest asset manager is a pivotal development that may encourage other financial institutions to follow suit, further embedding digital assets into global investment strategies.

USA Pause Ukraine Military Aid

The pause in U.S. military aid to Ukraine has heightened geopolitical tensions, adding uncertainty to global markets and triggering risk-off sentiment. With Congress stalling on additional funding, Ukraine faces growing challenges in sustaining its defense, while Russia appears to be gaining ground. This uncertainty has rippled through traditional markets.

Crypto markets also reacted sharply, with Bitcoin experiencing a sell-off as investors shifted away from risk assets following increased geopolitical instability. BTC initially dropped following the news, reflecting the broader market’s concern over potential escalations in conflict and shifting U.S. foreign policy dynamics. While Bitcoin has often been seen as a hedge against uncertainty, recent price action suggests that macro factors, such as geopolitical risk and liquidity shifts, continue to heavily influence its short-term movements. If the situation remains unresolved, further volatility could emerge, particularly if global risk sentiment worsens. However, the last time geopolitical tensions spiked (specifically with Iran and Israel) each instance led to market overreactions and local bottoms, suggesting that while short-term panic is common, these events have historically presented buying opportunities.

ETF Record Outflows

Spot Bitcoin ETFs in the U.S. saw $94.3 million in inflows on the last day of February, ending an eight-day outflow streak that totaled over $3.2 billion. BlackRock’s iShares Bitcoin Trust saw significant outflows of $244.6 million, while Fidelity’s FBTC and ARK 21Shares Bitcoin ETF recorded inflows of $176 million and $193.7 million, respectively. These inflows coincided with a market rebound as Bitcoin climbed to approximately $84,900 after dropping to $78,000. The rally gained momentum following Trump’s tweet about a strategic reserve for digital assets, pushing Bitcoin above $94,000. However, renewed concerns over tariffs and rising geopolitical tensions triggered a sell-off, leading to another outflow day and a retracement to $82,000 before recovering to $88,000.

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