Anndy Lian
Economic headwinds: Trade wars, slowing growth, and China’s quiet nod to Bitcoin
A rich tapestry of interconnected issues—global risk sentiment, Trump’s trade war, a slowing US economy, and Bitcoin’s potential as a reserve asset—that demand a thorough and nuanced analysis.
With markets in flux and new data points emerging daily, I’ll weave together the facts, figures, and broader implications to provide a comprehensive view of where we stand and where we might be headed. My perspective is informed not only by the latest market movements but also by a belief—echoed in my earlier writings—that corrections are a natural and necessary part of any asset’s journey toward a sustainable bull run.
Let’s begin with the global risk sentiment, which has noticeably pulled back in recent days. Investors, once buoyed by cautious optimism, are now paring back their enthusiasm as legal uncertainties surrounding President Trump’s trade war cast a shadow over the markets.
The trade war, a hallmark of Trump’s economic policy, has been a rollercoaster of tariffs, negotiations, and legal battles. Just when it seemed the bulk of his tariff agenda might unravel due to judicial challenges, a federal appeals court stepped in, offering a temporary reprieve by allowing the tariffs to remain in effect.
This ruling has had an immediate impact on equity markets. Overnight, the S&P 500 rose by 0.4 per cent, the Dow Jones by 0.3 per cent, and the Nasdaq Composite by 0.4 per cent—modest gains that hinted at resilience. Yet, much of that advance was trimmed as the court’s decision sank in, reminding investors that the tariff saga is far from over. The prolonged uncertainty is a weight on market sentiment, as the specter of future legal reversals looms large, threatening to disrupt supply chains and corporate planning further.
Compounding this unease is the state of the US economy, which is showing unmistakable signs of strain. Data reveals that the economy shrank at the start of the year, a contraction driven by weaker consumer spending and a more pronounced drag from trade than initially estimated. Consumer spending, the backbone of the US economy, is faltering as households feel the pinch of higher costs—some of which can be traced back to the tariffs themselves.
Businesses, too, are grappling with increased input costs and disrupted trade flows, which have dampened investment and growth. This economic slowdown is not just a domestic concern; it reverberates globally, amplifying the risk-off mood as investors reassess their exposure to US assets.
Across the globe, other economic signals are adding layers of complexity. In Japan, inflation has surged to its highest level in two years, fueled by rising energy prices and persistent supply chain bottlenecks. This inflationary spike, paired with robust wage growth, is stoking speculation that the Bank of Japan (BOJ) might raise interest rates in the second half of 2025.
For years, the BOJ has maintained an ultra-accommodative stance, but these pressures may force a pivot. If the BOJ does tighten policy, it could strengthen the yen, shift capital flows, and influence global bond yields—a development that would ripple through markets already on edge.
In the bond market, we’re seeing a clear flight to safety. US Treasuries have rallied, with the 2-year yield dropping by 5.2 basis points and the 10-year yield falling by 5.9 basis points. This uptick in Treasury prices reflects growing expectations that the Federal Reserve will cut rates to counteract the economic slowdown. The latest labor market data bolsters this view: recurring applications for US jobless benefits have spiked to their highest level since November 2021, hinting at a potential rise in unemployment.
For traders, this is a red flag—a sign that the Fed may need to step in sooner rather than later to shore up the economy. Lower yields on Treasuries signal not just a haven demand but also a recalibration of monetary policy expectations, with implications for everything from mortgage rates to corporate borrowing costs.
Turning to currencies and commodities, the picture is equally telling. The US Dollar Index (DXY) has held steady in early trading, down just 0.6 per cent, a resilience that underscores its safe-haven status amid global turmoil. Gold, another classic refuge, has climbed above US$3,300 per ounce, up 0.9 per cent, as investors seek to diversify and hedge against both inflation and uncertainty.
Meanwhile, Brent crude has slipped 1.2 per cent to just below US$65 per barrel, a decline tied to worries about slowing demand—particularly from a faltering US economy—and anticipation of OPEC+ decisions on output. These commodity shifts highlight the push-and-pull between haven assets and growth-sensitive ones, a dynamic that mirrors the broader risk sentiment.
Equity markets outside the US are feeling the strain as well. Asian shares fell in early trading, reflecting the global contagion of uncertainty, while US equity index futures suggest a 0.3 per cent lower open for American stocks. This synchronised retreat underscores how interconnected today’s markets are—legal rulings in Washington, economic data from Tokyo, and policy whispers from Beijing can collectively sway sentiment from Wall Street to Shanghai.
And then there’s Bitcoin, which brings us to one of the most fascinating subplots in this narrative. China’s International Monetary Institution (IMI), a state-backed think tank housed within the prestigious Renmin University, has quietly thrust Bitcoin into the spotlight. In a republished article, the IMI describes Bitcoin as “transitioning from a speculative asset to a strategic reserve asset.” This is no small statement, even if it stops short of an official endorsement.
The IMI, founded in 2009 to explore monetary finance theory and policy, carries weight—its leadership includes senior academics and advisers with ties to China’s policymaking elite. For a country that has historically cracked down on cryptocurrencies, this subtle nod to Bitcoin’s potential is a seismic shift. It’s not a central bank proclamation or a legislative green light, but it’s a policy-side whisper that could signal a rethinking of Bitcoin’s role in global finance.
Why does this matter? If China—or any major economy—were to seriously consider Bitcoin as a reserve asset, it could reshape the global monetary order. Reserve assets, traditionally dominated by the US dollar, gold, and a handful of other currencies, underpin central banks’ ability to manage liquidity and stabilise economies.
Bitcoin, with its decentralised nature and finite supply, offers a radical alternative—one that could hedge against dollar dominance or inflationary pressures from fiat currencies. The IMI’s commentary might be a trial balloon, testing the waters for how such a move would be received. Given China’s economic clout, even a gradual embrace of Bitcoin could spur other nations to follow suit, amplifying its legitimacy and value.
Bitcoin’s price action, meanwhile, is a microcosm of its broader journey. After hitting a new all-time high of US$111,970, it pulled back to around US$105,500, a drop of over 1.5 per cent. This retreat isn’t surprising—price discovery phases are inherently volatile, marked by sharp rallies and corrections as investors cash in profits and reposition.
The open interest in Bitcoin derivatives has soared, with BTC option contracts reaching a record US$46.2 billion, a sign of heightened speculation and hedging. Yet, profit-taking remains below extreme levels, suggesting that the market isn’t yet overheated. Glassnode analysts, whose data I trust for its rigour, see this pullback as a healthy part of Bitcoin’s maturation.
Their Relative Unrealised Profit metric shows the asset nearing a “euphoric phase,” with unrealised gains spiking above the +2 standard deviation band. These phases often bring rapid price swings and volatility, but they’re typically short-lived, paving the way for the next leg up.
This brings me to my own view, one I’ve articulated before in an X post: for Bitcoin to hit a “super bull run season,” we need corrections—ideally a minimum of 30 per cent. I stand by that assessment. The current dip, while notable, is modest in the grand scheme of Bitcoin’s cycles. Historically, Bitcoin has endured drawdowns of 40 per cent or more during bull markets, only to rebound stronger.
A deeper correction would shake out weak hands, reset expectations, and set the stage for sustainable growth—potentially pushing Bitcoin past US$150,000 or higher in the next phase. The IMI’s musings, combined with global uncertainty, could fuel that narrative, positioning Bitcoin as both a speculative play and a strategic asset for institutions.
Trump’s trade war and a slowing US economy are stoking risk aversion, driving investors toward Treasuries and gold while equities falter. Japan’s inflationary pressures hint at tighter policy ahead, adding another variable to the mix. And Bitcoin, buoyed by China’s subtle nudge and its own market dynamics, is carving out a unique space—one that blends speculative fervour with strategic potential.
I see opportunity amid the chaos. The corrections we’re witnessing, whether in stocks or crypto, are pruning the market for what could be a transformative next chapter. For Bitcoin, the path to reserve status is still hypothetical, but the conversation has begun—and that alone is a story worth watching.
Source: https://e27.co/economic-headwinds-trade-wars-slowing-growth-and-chinas-quiet-nod-to-bitcoin-20250530/
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