Trakx Weekly Update: Risk-On Rally Falters as Strait Tensions Return

Key Crypto Market Figures

CTIs Weekly Performance

Digital asset prices finished last week in the green, with our flagship large cap Top10 Crypto CTI gaining 3.6%. The top performer though was our Recovery CTI, after it rallied just shy of 10%. Meanwhile, at the other end of the performance stack the weakest performer, with a 1.7% loss over the preceding seven day period, was the Bitcoin Momentum CTI.

Schrödinger’s Strait

Digital asset prices were supported by geopolitical developments late last week. On Friday Iran’s foreign minister Abbas Araghchi announced it was opening the Strait of Hormuz to all commercial vessels for the duration of the ceasefire in Lebanon, which expires on April 26. While President Trump made clear that the blockade of the Strait remains in “full force” for Iran, the announcement caused crude oil prices to tumble more than 10%, despite Iran warning that it would close it again if the US blockade continued. This de-escalation provided the fuel (no pun intended) for a risk-on rally that not only boosted tradfi assets, but also digital assets, with the major tokens gaining over 4% on the back of the news.

Over the weekend, some vessels successfully passed through the strait. However, tensions resurfaced after the US fired on a cargo ship breaching its naval blockade, action that Iran threatened would result in retaliatory action. As a result, crude oil prices recovered over half of Friday’s drop earlier today, while digital and tradfi assets retreated as investors shifted back to a risk-off stance.

Global Debt Surge Continues

Beyond short-term volatility, one of the slow-burning impacts of the Iran conflict, which correctly viewed is part of the fracturing of the global world order, is that governments around the world are increasing spending on defence. In the case of NATO countries, the impetus is also being driven by President Trump’s accusations that members have been free-riding on the US for years (given the US accounts for 60% of the organization’s total budget he has a point). While some of this increased spending is being funded through higher taxes or budget reallocation, many countries are also turning to additional borrowing. For example, EU member states have activated the “national escape clause” for 2025–2028, allowing them to temporarily exceed debt limits to fund defence.

Reflecting these trends, the IMF’s recently published World Economic Outlook projects that global government debt will reach 100% of GDP by 2029. Such levels are rarely seen outside of wartime, rising concerns about debt sustainability. Indeed, former US Treasury Secretary Hank Paulson, who oversaw the 2008 financial crisis, last week warned that with US federal debt fast approaching the $40tr mark, the country must prepare an “emergency break-the-glass plan” for a potential “vicious” collapse in demand for US Treasuries. History shows bringing down the such elevated debt burdens via fiscal consolidation alone (lower spending/higher taxes) is nigh impossible. Instead, countries typically resort to higher inflation facilitated by central banks hitting the printing press. This narrative resonates strongly in the crypto space because it was the primary motive for Satoshi Nakamoto creating Bitcoin in the first place.

Crypto Degen For Fed Head?

This week, Trump’s pick to replace Powell as head of the Fed, will appear before the Senate Banking Committee (SBC) for his confirmation hearing. Given he has previously worked as a governor on the FOMC board, his insider credentials and experience suggest there is a very high probability that he will be confirmed before the May deadline. Nevertheless, there are some on the SBC who oppose his appointment, including Senator Warren, the leading Democrat on the committee. Her concerns are centred around Warsh’s substantial financial assets, which are estimated to be worth over $100 million.

Filings, published last week, showed that Warsh not only has substantial holdings in several tradfi firms, but also owns equity positions in numerous digital asset and blockchain companies ranging from Bitcoin Lightning, Solana, and several other DeFi, lending and Web3 protocols. While Warsh has pledged to divest the majority of these holdings in order to avoid potential conflicts-of-interest as required by the Ethics in Government Act, his portfolio clearly demonstrates his positive bias towards digital assets. This may not please Senator Warren (a known crypto critic), but if Warsh is confirmed, it implies the next Fed head will be the most crypto-friendly yet.

Sources: Trakx, Coingecko, Alphavantage

Market Trends

• Is crude heading back to $100? Crypto traders drive $500M weekend Hyperliquid oil bets over Strait of Hormuz closure: CryptoSlate
• The 100% debt trap: Why the IMF’s latest warning is a massive long-term signal for bitcoin: CoinDesk
• Ex-Treasury chief warns of US bond crash, calls for contingency plan: Cointelegraph
• Ahead of Senate confirmation hearing, Fed pick Kevin Warsh discloses investments in a slew of crypto firms: The Block
• Canton Network CEO hits back at ‘crypto ideologues’ who question his network’s blockchain credentials: DLNews
• Trump Is Hosting Another Meme Coin Gala—The Price for VIP Access Is Down 90%: Decrypt

Trakx News

• Trakx CTIs are now available through Five North’s Loop wallet on Canton Network meaning they can now be held and transferred on-chain on Canton. This marks an important step in extending our index products beyond the Trakx platform. For more details on this exciting development please click here.
• To give a more connected on-chain trading experience Canton Trading lets eligible Trakx users trade supported CTIs on Trakx while reflecting that activity on the Canton Network. Users can also deposit CTIs directly from their Canton wallet into Trakx Exchange, and withdraw them back to Canton at any time, keeping full flexibility over how they hold and use their assets across the network.
• Thanks to everyone who came to meet the team at last week’s Paris Blockchain Week conference. It was great to connect and catch-up.

Trakx CTIs Performance

Sources: Coingecko and AlphaVantage

*Return of bitcoin is calculated since 01/05/2020, while CTIs performances were calculated since their respective launch date.
**Includes simulated performance.
***The risk signal is determined according to the historical volatility level, the higher the riskier.

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Disclaimers: No Investment Advice. Index returns and statistics are for illustration only. Index returns do not reflect any transaction costs or expenses. Past performance does not guarantee future results. The information provided in this newsletter does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the newsletter content as such. Trakx.io does not recommend that any cryptocurrency should be bought, sold, or held by you. Readers shall conduct their own due diligence and consult their financial advisors before making any investment decisions.