Tariffs, Trade, and Inflation: The 2025 Balancing Act
Potential Policy Outcomes We’re Watching in 2025
Complex Macro Environment
A second Trump presidential term brings back the use of tariffs as a negotiating tool, which could lead towards positive outcomes for a realignment of foreign policy. However, if the tariffs are severe and implemented, prices will likely rise and increase inflation pressures. Although Trump is said to have plans to weaken the US dollar, widespread tariffs may help keep USD buoyant relative to other nations' currencies.
A second Trump presidency also represents a dramatic shift in policy at the border, with fewer foreign individuals likely to enter the country and more deportations of foreign individuals already in the country. The significant reduction in foreign workers entering the labor force may lead to wage inflation and increasing price pressures.
Rising inflationary pressures may bring a potential disagreement on the direction of interest rate policy between Trump and Fed chair Jerome Powell. Despite the current inability for Trump to replace Powell directly, Trump may install a shadow Fed chairmen which will then only confuse markets and create additional uncertainty on Fed policy.
Regulatory Clarity, DOGE & the SBR
The new administration also brings with it a dramatic shift in attitudes toward digital assets and digital asset policy. Trump has named several crypto advocates to his cabinet including Paul Atkins as SEC chair, Scott Bessant as Treasury Secretary and David Sacks as the AI and crypto czar. Trump is also said to be considering Brian Quintenz as CFTC chair. Quintenz served at the CFTC from 2017 to 2021 and helped launch the first regulated Bitcoin and Ethereum futures contracts in the US. Trump has also hinted at bolstering the CFTC’s role in leading crypto regulation, instead of the regulation by enforcement under the SEC.
Trump has also instituted a Department of Government Efficiency, lead by Elon Musk and Vivek Ramaswamy, to dramatically cut costs and government spending. Slashing the US debt burden should help keep bond rates lower and prevent a potential coup from bond vigilantes once the debt is under control. Otherwise, a dramatic rate rise on the long end of the curve because of unsustainable deficit spending would be a bearish headwind to all risk assets.
Other tailwinds include the potential Strategic Bitcoin Reserve (SBR), which would likely mean holding the US government’s current supply of nearly 200,000 BTC and potentially adding to the stockpile. Selling the government’s gold reserve and buying BTC has also been floated as an option to fund the SBR. An SBR wild card would be the inclusion of digital assets beyond just Bitcoin but there would likely be less of a justification for alternatives in the initial stages of the reserve.
Four Bitcoin Charts We’re Watching in 2025
1. Power Law (PL) Price Model
The PL provides support and resistance bands based on historic price action using a linear regression model of log price against log time. Both bear market lows and bull market highs have been captured by the PL price model over the past decade. The current bull market ceiling of the PL is projected at $375,000. In prior post-halving bullish rally’s, price action beyond the lower half of the PL model has led to price appreciation towards the ceiling of the PL.
2. Two Year Moving Average Multiplier (2YMAM)
The 2YMAM plots the two year moving price average as a historic support zone with a 5x multiple of the two year moving average as a historic resistance zone. Using these levels, an overbought and oversold oscillator can be utilized in both bullish and bearish extremes. The current bull market ceiling of the 2YMAM is projected at $250,000.
3. Market Cap vs Realized Value (MVRV)
MVRV measures the market capitalization of Bitcoin against the realized value of all coins. Bitcoin realized value is determined by the price all coins last moved on the blockchain. A high market cap relative to realized value is suggestive of significant unrealized profits, yet to be moved on the blockchain. Spikes or extreme highs in MVRV above 6.0 have corresponded with price cycle highs. MVRV is currently around 3.0, suggestive of room for more price appreciation during the current bullish price cycle.
4. High Timeframe Cup & Handle Chart Pattern
Over the past three years, Bitcoin price has formed a familiar price fractal known as a Cup & Handle. The chart pattern holds a bullish bias with a price projection from $185,000 to $333,000 based on the depth of the pattern measured higher. Additionally, a 20-week moving average (WMA) has historically acted as a litmus test for high timeframe bullish trends. Therefore, the 20WMA can be seen as a reliable trailing stop loss for the current trend.
