𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝗮𝗻𝗱 𝘁𝗵𝗲 𝗖𝗵𝗮𝗻𝗴𝗶𝗻𝗴 𝗪𝗼𝗿𝗹𝗱 𝗢𝗿𝗱𝗲𝗿
What is happening currently happening with Trump’s tariff policies could have big repercussions down the line – repercussions an asset like Bitcoin could profit from. This is because of a shift in global capital flows that have been accelerated by President Trump’s tariff policies.
The U.S. administration’s top priority appears to be the recalibration of global trade, with a strong focus on significantly reducing the U.S. trade deficit. However, because the trade deficit is the mirror image of the capital account surplus, a smaller trade deficit would naturally coincide with a decline in capital inflows.
Simply put: All else being equal, a shrinking trade deficit means Americans would buy fewer goods from other countries. As a result, less foreign money would flow back into U.S. financial markets.
If this shift were to happen on a significant scale, there’s a real chance that the U.S. stock market may have already peaked in real terms, and that U.S. financial markets may gradually lose their status as the world’s dominant savings and investment hub. If so, Tesla stock being off 50% might not actually represent the buying opportunity everyone thinks it is…
In that case, there was even the possibility that we could see a dynamic similar to Japan’s experience, where the stock market peaked in the late 1980s and then entered a long-term decline that lasted for decades.
This is bullish Bitcoin. As global investors would be seeking alternatives, attention would naturally turn to other stores of value. Alongside gold, Bitcoin could emerge as a serious contender — a neutral, borderless asset with strong upside potential and growing acceptance in a multipolar financial world.
The way for the US to avoid the “Japan trajectory” would be to have domestic savers increasingly take up the slack of investing in its own stock market. Some of this brunt could be borne by the central bank.
According to the latest numbers, the Bank of Japan (BOJ) owns approximately 7% of the Japanese stock market through its holdings of exchange-traded funds (ETFs). The BOJ became the largest owner of Japanese stocks in 2020, surpassing the Government Pension Investment Fund, and holds about 80% of the country's ETFs. It is also a top 10 shareholder in roughly 50% of Tokyo Stock Exchange-listed companies.
If the Fed is not going to step in, the US’s commercial banking sector will. In the background, measures are already being taken by the current deregulatory friendly US administration.
The most straightforward measure that will predominantly support the bond market, is to loosen the bank’s supplementary leverage ratio (SLR). This way, dealer balance sheets will be relieved, allowing them to grease the Treasury market’s plumbing.
The SLR is a key banking regulation rule, introduced after the 2008 financial crisis, to ensure that big banks don’t overleverage themselves (i.e., take on too many assets relative to their capital). It requires large banks to hold a minimum amount of Tier 1 capital (core capital, like common equity) against their total leverage exposure, including off-balance sheet items and low-risk assets like U.S. Treasuries and central bank reserves.
Through the relaxation of the SLR, balance sheet capacity should be freed up at big banks. This enables (read encourages) them to hold more Treasuries and facilitate Treasury market activity. While this will help juice up the Treasury market, it will likely require more alchemy than merely altering this one ratio.
No matter what route will be taken, all roads point to Bitcoin. Whether it be the central bank directly monetizing the stock market or the commercial banks that will “force” domestic savers to absorb bonds in quantities larger than they want at yields they wouldn’t accept on the open market, the path of least resistance toward financial repression will lead people to Bitcoin.
