March will be a monumental month in the history of Bitcoin, influencing both its short-term path and its long-term potential. Recent developments—including the announcement of the Strategic Bitcoin Reserve and shifts in Federal Reserve policy—have positioned Bitcoin at a critical juncture where short term pain (tariffs) might be needed to set it up for longer term gains (FED policy)
As we touched upon in the last newsletter, the official recognition of Bitcoin as a strategic national asset by the U.S. government is undeniably bullish in the long term, even though immediate market reactions have been mixed. Although the Strategic Reserve involves no new government Bitcoin purchases (merely holding previously seized assets), its establishment marks a crucial milestone, legitimizing Bitcoin at a governmental level and sending a powerful signal globally. BlackRock recommends clients allocate 1-2% of their portfolios to Bitcoin, potentially unlocking substantial inflows given global wealth ($900 trillion total addressable market).
On the supply side, Bitcoin remains constrained: only 1.3 million of the total 21 million Bitcoin remain to be mined, underscoring the long-term supply squeeze scenario.
Stablecoins are rapidly gaining traction, for good reasons, with major financial institutions like Bank of America, Stripe, and PayPal recently launching their own stablecoins. These Dollar-pegged crypto currencies have a 1:1 backing of U.S. Government Bonds, making them fully collateralized. Regulatory frameworks around stablecoins are nearing completion, providing much-needed clarity and stability to this growing segment of digital assets. The strategic importance of stablecoins to the U.S. economy is underscored by Tether becoming the seventh-largest buyer of U.S. treasury bonds in 2024, buying more government bonds than Canada or Taiwan, highlighting stablecoins’ new-and-crucial role in solidifying a bridge between crypto and traditional finance.On the supply side, Bitcoin remains constrained: only 1.3 million of the total 21 million Bitcoin remain to be mined, underscoring the long-term supply squeeze scenario.
Inflation, growth, and liquidity are deeply interconnected and are the most important factors in the real economy. Core inflation has continued its slow descent, reaching 3.1%, while headline CPI remains stable. Despite easing inflationary pressures in CPI, it still sits above the Federal Reserve’s 2% target, maintaining pressure on interest rates and constraining the FED in their policy. Core PCE came in worse than expected at 0.4% month over month growth, where 0.3% was expected. Economic growth took a hit because of the tariffs, and now sits at 0,3% growth for Q1. This low but positive growth is supported by the robust labor market, which has not deteriorated. The data remains mixed and the economy is, for now, absorbing these shocks.
On the liquidity side, the environment has shifted notably following the Federal Reserve’s recent policy adjustment. By reducing monthly Treasury runoff from $25 billion to $5 billion, the Fed effectively injects $20 billion of liquidity back into markets on a monthly basis, signaling a subtle pivot towards easing monetary conditions. However, overall conditions remain mildly restrictive due to elevated interest rates. This balance has prompted markets to price in as many as three potential Fed rate cuts by the end of 2025, reflecting cautious optimism tempered by ongoing macro uncertainties.
These interconnected factors are influencing market valuations, with equities selling off on reduced growth and earnings expectations. This environment creates valuation risks unless earnings growth accelerates, or inflation fall back in line with expectations.
April’s economic data releases will be crucial in determining the market trajectory, with inflation as the key variable. We are closely monitoring two potential scenarios. In the first scenario—a “soft landing”—if inflation remains controlled or continues to decline, the Federal Reserve gains flexibility to lower interest rates without sparking renewed inflationary pressures. Under this scenario, which is our base-case, robust growth would strongly support market optimism, and even a slowdown or mild contraction in growth could be manageable, as it would prompt the Fed to ease monetary conditions.
Conversely, the “hard landing” scenario presents significant challenges. If inflation persists at elevated levels, the Federal Reserve’s options become limited, as reducing rates could reignite inflationary concerns. This scenario has driven recent market downturns, as continued high inflation coupled with weakening economic growth creates conditions where the economy struggles and the Fed finds itself constrained, unable to act decisively to stimulate recovery.
In the short term, President Trump’s tariff announcements have significantly raised economic policy uncertainty, increasing investor caution and market volatility. Historically, Bitcoin and other risk assets typically face downward pressure during such uncertain periods.
Critical price levels for Bitcoin remain clear, with support at $72,000 and resistance at $95,000. Volatility is expected within this range until greater clarity emerges, particularly after the April tariff implementations.
Despite short-term challenges, Bitcoin’s long-term fundamentals remain robust, driven by capped supply, growing institutional interest, and official U.S. recognition. The Bitcoin Strategic Reserve, although initially underwhelming, enhances Bitcoin’s credibility as a strategic asset, putting the ball in other nations’ court with regards to policy around this asset.
The coming 6–12 months present a compelling “perfect storm” scenario for Bitcoin and broader markets. Growth risks may subside as tariffs become established and supply chains adjust. Furthermore, the Federal Reserve appears ready to pivot towards rate cuts, providing critical liquidity support. Gold’s rise to new all-time highs underscores the market’s shift towards alternative inflation-hedging assets. Additionally, institutional adoption of Bitcoin continues to accelerate, laying a strong foundation for potential market upside.
Despite short-term turbulence, the long-term fundamentals for Bitcoin only improved. Limited supply, growing institutional demand, and official recognition by the U.S. government suggest significant upward potential once macro uncertainty stabilizes.
The Bitcoin Strategic Reserve, while initially disappointing some, fundamentally reinforces Bitcoin’s legitimacy and enhances its appeal to sovereign and institutional investors.
The FED’s policy pivot, limiting their QT, makes way for the next steps in their monetary policy where we expect QE will follow in the coming months, if inflation stabilizes.
The FED acknowledges that inflation from tariffs are transitory and do not contribute to long term inflation risks.
The long-term prospects for Bitcoin have significantly improved with the introduction of the Strategic Bitcoin Reserve, the FED’s policy shift from aggressive QT to very mild QT, and the expectation of more interest rate cuts. Bitcoin’s price movements have historically been strongly influenced by liquidity conditions, and these factors have notably improved following the Fed’s recent pivot on quantitative tightening and anticipated lower interest rates. As long-term investors, our focus remains on the 6–12 month horizon, where we see a strongly bullish outlook. In the short term, we believe the worst volatility is behind us. While April may still see some fluctuations, we anticipate Bitcoin to regain momentum and accelerate higher in both the short and long term.
