Markets: Time to “buy the dip”?

As risk asset volatility picks up after a few “YMCAs” and many executive orders in the first week of the Trump administration, we cannot help but wonder, should we (have) listened to Nansen Risk Barometer and “reduce(d) risk”? Or is it time to “buy the dip” on some tokens?

Last Monday, the “DeepSeek”-triggered correction in Semi and AI-related stocks bled into crypto markets. Commentators were quick to highlight the non-fundamental nature of this contagion. Shouldn’t “cheaper” AI models benefit crypto, especially crypto applications building on AI technology? The first tongue-in-cheek comeback is: When did crypto prices ever move based on “fundamentals”? A more thought-through reply is not so far away from the latter: when a stock (Nvidia) representing close to 6.5% of the market cap of the main equity market, the S&P 500, registers a one-day double-digit fall, shouldn’t assets with a high-risk premium react? Crypto is speculative and has a high risk premium, and its correlation with US equities has historically surged in major equity sell-offs.

A caveat this time: BTC, contrary to higher-beta tokens, has had a very shallow and brief intra-day sell-off down to 97.7k and has since recovered to 102k. This shows an interesting level of “dispersion” between tokens, with BTC still the darling token of this new, policy-driven, market environment.

We also suspect some “buy the rumor, sell the news” may have been at play for crypto and stocks. The White House released its Crypto Executive Order last Thursday, followed by underwhelming price action by BTC and the rest of the crypto market.

We also learned that the Musk-led DOGE initiative was considering public blockchain to track and manage public expenses, which was also ignored by crypto markets.

In other words, crypto markets appear satiated for now and more reactive to negative sentiment than positive news.

Equities also have an asymmetry issue despite very strong Q4 earnings reported so far (the S&P 500’s blended earnings growth stands at 12.5% YoY, the highest since 2021). But valuations are at record levels, leaving “little margin” for disappointment (e.g., if the PE cannot expand, earnings growth has to justify price growth). The S&P 500 Shiller PE has only been higher than today twice in its all history, in November 2021, and in 2000.

These are the risks, but, after this week’s move, which alleviated prices, is it worth “buying the dips” on some “winning” tokens, tokens with a strong narrative, either wide adoption, Trump administration’s favors, ETF rumors (e.g. SOL experienced a strong -11% correction)?

Volatility will mean some opportunity to “enter” crypto at more attractive levels, in our view. But, turning to price and volume action, we notice that “buyers”’s confidence has been somehow shaken. Yesterday’s (Tuesday, 28 January) recovery was timid (small-body price candles, low volume, see below on BTC and ETH).

Also, Nvidia’s stock has started to sell off again today despite Monday’s tumble and the excellent earnings reported by the primary company of the global AI supply chain, ASML, the leader of high-tech chip-manufacturing machines, which reported 7bn EUR in orders, double the analysts’ consensus.

It is still a psychologically fragile market, with confidence in the AI narrative somewhat eroded. This is important for other risk assets because of the dominance of AI-related stocks in performance and market cap for two years. We need more good news on earnings. Microsoft, Tesla, Meta Platforms, Apple, Alphabet, and Amazon are scheduled to report their respective earnings this week and the next. Nvidia will report on the 26th of February.

Still a bull market

Volatility is an opportunity, especially in a bull market, we feel. The policy and growth backdrop remains positive for crypto, and we want to go back to two pieces of news that the market has brushed away, but could return to prominence (after a price correction).

The fact that DOGE is considering public blockchains for a public administration’s mission and functioning, not semi-permissioned or permissioned ledgers, appears very positive to us, as it would finally signal wider technology adoption outside the small circle of “crypto initiates”. This seems positive for a basket of the main L1 and L2 governance tokens.

Then, there is the effective repeal of the SEC accounting rule (SAB 121), and the adoption of SAB 122 instead. What does this mean? SAB 121 stated that “entities holding crypto assets in custody on behalf of customers should record customer crypto holdings as liabilities on their balance sheets and measure this liability—both at initial recognition and at each reporting date—at fair value.”. SAB 122 will allow:

• To scrap very large capital costs posted by banks to custody crypto assets for clients
• To reduce the volatility of marked-to-market crypto asset value

To us, this is extremely bullish, especially as we see a larger crypto adoption by retail and institutions as a necessary condition for higher prices. Making regulation more straightforward for the banking distribution channel will tap into a new category of clients: those who did not want to buy via an ETF. We can also foresee new asset management products sold to banking clients and allocated to crypto assets.

As we write, the FOMC meeting just concluded, and Fed Chair Powell did not push back against banks managing crypto assets for clients: “We are not against innovation and do not want to take action that would force banks to terminate customers”.

Some of the existing crypto custodians could potentially benefit from M&A opportunities (by banks entering crypto). See this article for more.

Of the “non-crypto” Trump policies

A pro-business approach marks President Trump’s first executive actions and various public declarations, more so than a pure protectionist agenda.

Deregulation and stimulating private sector activity

The new US administration is willing to broadly support key “priority” sectors, such as AI and the AI value chain, fossil energies, crypto & financials, the auto industry, defense, and manufacturing.This strategy varies from the prior administration’s use of subsidies to favor specific economic sectors. President Trump will visibly act by facilitating private sector consortia and initiatives, removing regulatory “obstacles,” helping with land allocation, and occasionally allowing preferential tax regimes in collaboration with the local States. “Project Stargate”, regardless of whether it can achieve its “$500bn” spending ambitions, is an illustration of several private companies pulling resources for productive investment in ”date centers” and “campuses” to develop AI in the US, with the help of the State.

On deregulation, some key measures initiated in the administration's first week have included lifting a moratorium on LNG export facility construction in the US to stimulate exports to Asia and the Eurozone.

These initiatives and their general signaling are positive for the US economy, even if some will likely take years to impact the economy and even with the intellectual competition of geopolitical powers like China.

​​Tariffs, a bi-lateral negotiation strategy

Tariffs have been the objects of announcements, not actions, so far and have been used in multiple bilateral negotiation threads.

Also remarkable is the refusal to single out China: 10% ”only” has been floated as a potential tariff hike vs. the country. The US's other trade partners, Canada and Mexico, have been in focus first, with the opening tariff threat at 25%. In the balance is the negotiation around exports ranging from drugs, lumber, oil, and migrants. High-export Asian countries such as Vietnam have also been singled out. The Eurozone will likely come next, with several “discord apples” in the shape of “unfair” agricultural and auto trade policies and treatment of US Big Tech (recall Apple €13bn tax bill litigation last year).

Markets have priced a more benign tariff outlook as the USD weakened last week. We retain a negative view of the local currency for the Eurozone, which is also marred by domestic growth issues.

Also, there remains significant uncertainty around the outcome of these negotiations and their economic impact, with complex geopolitical issues at their core, such as the outcome of the war in Ukraine in the dialogue with China, and very sharp competition in high-value sectors such as AI, chip manufacturing (the Deep Seek vs OpenAI drama.

That said, we have trouble seeing the US administration pushing inflationary tariffs on consumer goods. To us, tariffs will rather be used as a negotiation weapon to push the US’s advantages over other countries.

Fed: Neutral, not bearish crypto, for now

Overall, the latest FOMC press conference hinted towards a neutral impact of the Fed on crypto assets.

Fed Chair Powell has balanced a difficult exercise, signaling that the Fed is not “in a hurry” to cut rates, because of where the labor market and inflation stand, and because of the “wide” uncertainty around tariffs and other policies from the Trump administration.

At the same time, Powell reaffirmed that the current Fed Fund rate is still above the “neutral rate” estimate, meaning this is still a cutting cycle (with a pause).

The Fed Chair also focused on data, as opposed to speculation of future policies and their economic impacts. He highlighted more specifically 12-month inflation data (e.g. smoothed and not short-term data), highlighting the progress on disinflation in rent data.

Asked about crypto risks for households, Powell was rather constructive “ “we are not against innovation and do not want to take action that would force banks to terminate customers””.

OIS rate markets barely moved after the conference finished, up 3bps. This means markets still see two rate cuts in 2025 (to 3.9%). Powell did not sound hawkish enough to trigger a rate cut price-out.

Excerpts from the FOMC press conference of January 29th

“We do not need to be in a hurry to adjust our policy stance”

Powell said that the Fed would ease in case inflation slows or the labor market cools and will hold rates if inflation does not decelerate or the labor market “stays” in balance.

“The last two inflation readings have been positive”

“Expectations for inflation [for the Committee] have moved up in the short-term, but not in the long-term probably due to the uncertainty around the [Trump’s ]policies.” Powell signaled a wait-and-see attitude on tariffs, immigration, fiscal, and regulatory policies and their impact on inflation.

“We will want to see further progress on data, 12-month inflation data” to cut.

“We are meaningfully above it [the neutral rate]. Having cut significantly [1%-point], it is appropriate that we are not in a hurry.”

On tariffs, “the range of possibility is very wide” (also because of country dispersion vs just China in 2019). We do not know which country, when, and if there will be retaliations, we do not know how it will be transmitted to the economy.

On the end of QT or balance sheet reduction: “Reserves are still abundant… I do not have anything to say on any particular date.”

“Financial conditions are still probably accommodative, but it is a mixed bag”

On whether he worries about crypto risks (on households’ financial health): “Banks are capable of serving crypto customers as long as they manage risk”; “We are not against innovation and do not want to take action that would force banks to terminate customers”. “It would be helpful if there was a greater regulatory apparatus on crypto by Congress”