Total levies on imports from China have now reached 104%.
Volatility remains high, with the VIX (Volatility Index) holding above 40 points for the third consecutive session. Traditional protective assets have ceased to fulfill their function. Low-risk assets are not providing sufficient protection: gold and US bonds are selling off as investors seek to reduce risk and meet margin requirements.
The Trump administration's strategy to refinance U.S. debt at lower rates is showing signs of strain - yields have risen across the curve. The yield on 10-year US Treasuries peaked at 4.50%, while 30-year yields briefly exceeded 5%. Credit spreads continue to widen, reflecting a general deterioration in risk sentiment.
Instead of changing course, President Trump appears to be employing a martingale strategy, doubling down on every counter move. With China holding most of the leverage, one wonders what other economic resources the U.S. is willing to bring to bear in this standoff.
Markets are now oscillating between two potential sources of support: either an easing of the Trump administration's tariff policy or Fed action to lower rates. However, neither of these lifesaving solutions are foreseen in the near future. With unemployment remaining stable and inflation showing signs of resurgence, the Fed is likely to maintain current rates for the foreseeable future. This is contrary to market expectations of four rate cuts in 2025, including speculation of a possible extraordinary cut.
Cryptocurrency market status
Bitcoin is holding above $75 000, but that stability could end if stock markets fall sharply again. Ethereum continues to perform worse than the market, drifting towards the $1 400 mark, a level last seen in early 2023.
Curry trade in cryptocurrencies
Amid heightened volatility, carry-trade in cryptocurrencies is coming to the forefront. QCP Capital notes that elevated implied volatility creates an attractive window to get a curry trade via structured trades.
A carry trade is a strategy in which a trader borrows funds at a low interest rate and invests them in an asset with a high yield. In the context of cryptocurrencies and options, this can mean selling options (puts or calls) to earn a premium, especially when implied volatility is high.
Such strategies work as follows:
- A trader sells options with a strike price far from the current market price of bitcoin or Ethereum
- Receives a premium from the sale of the options
- If the asset price remains within a certain range, the options expire worthless and the trader keeps the premium
The advantage of this strategy in the current environment is that high implied volatility means higher option premiums, potentially increasing returns. However, the risk is that if the market moves strongly in the direction of the options sold, the trader could suffer significant losses.
Given the current market conditions, cryptocurrency curry trading can provide an alternative source of profit during times of high uncertainty. However, it is important to note that such strategies require careful risk management and an understanding of the options markets.
Macroeconomic tensions between the US and China continue to put pressure on global markets. Traditional protective assets are failing in their role, forcing investors to look for alternative strategies. Against this background, the cryptocurrency market demonstrates relative stability, despite a slight decline in Ethereum.
