Here’s what you’ll find in today’s edition:

• Felix unpacks why it’s a dangerous time to be overexposed to US assets.

• Senators eventually came to a bipartisan agreement after a testy markup of this bill. 

• A BlackRock exec shares why some clients are still confused about bitcoin.

The Great Recalibration

The law of unintended consequences is a premise in social sciences that shines a light on the outcomes of a purposeful — but not intended or foreseen — action.

As I think through the second and third order effects of Trump’s policies thus far, this notion feels increasingly crucial to consider.

In a recent op-ed in the Wall Street Journal, Bridgewater Associates CIO Greg Jensen claimed that “it’s a dangerous time to be overexposed to US assets, and almost everyone is.” 

Jensen is right. Heading into 2025, nearly all of Wall Street was on board for the US exceptionalism trade and the idea of hiding out in Mag 7 stocks:

As we begin to unpack the effects of Trump’s trade policies, I’m starting to see a major recalibration of global capital flows unfold that I don’t think was fully anticipated by the president and his team. 

If you compare the MSCI USA index to MSCI World, we can see how, over the past couple of years, the US surged higher — driven by outsized fiscal deficits — while the rest of the world was experiencing a despondent economy. However, since Trump began his trade policy dealmaking and pursuit of lower deficits, this ratio has been falling apart:

Let’s unpack what’s driving this by looking at some of the major economies and how they’re evolving. 

Comparing cross-border economic surprise indexes is a great way to examine which direction economies are trending, as they measure in real-time whether economic data is surprising to the upside/downside. 

For the past couple of years, most economies have been in sync. But a major divergence is unfolding, with the US surprising lower and other countries surprising higher:

Adding to that, Trump’s threats of tariffs have awoken the fiscal beast in many countries, namely across Europe. 

As seen in this chart from my recent interview with Vincent Deluard, in the face of Trump’s threats to stop supporting the NATO security apparatus, Germany now plans to invest $500 billion into its defense and infrastructure — a development that sent Bund yields soaring:

This led to a surge in the euro/USD to 1.088 and a mirrored decline in the USD. 

This was a fiscal unshackling moment by the country that has been at the forefront of pursuing austerity. This reversal has sent Europe stocks soaring as capital flows out of US stocks and into European equities. 

In Japan, the theme of surging yields is similar. The Japanese 30-year bond yield just surged to a 20 year high:

As yields in countries that have predominantly moved capital into US bonds and equities continue to rise, it puts pressure on the calculus that makes owning US assets worth it — turning them into net-sellers as global capital flows back home.

This is why Jensen, as CIO of the world’s largest hedge fund, says it’s a dangerous time to be overexposed to US assets. The marginal buyers of the last 30 years are becoming marginal sellers as capital becomes more attractive back home, largely catalyzed by Trump’s policies.

I believe this trend in global capital flows is only just beginning. Yes, a lot of big moves have already occurred across the board, but the big money cannot shift in just a few weeks. Those megaships take years to turn.

— Felix Jauvin

The percentage of “high-net-worth” American investors (defined as those with $1 million or more to invest) that currently own crypto, according to new Grayscale poll data.

This is higher than the 20% of broader Americans the poll found to own crypto, showing that richer folks might be paying closer attention to the asset class. 

When high-net-worth individuals were asked why they bought crypto, 42% said it was because a financial professional recommended it. That number was 27% for people with less investable assets. 

Senator Bill Hagerty’s GENIUS Act — aiming to establish regulatory guidelines for stablecoin issuers — advanced to the Senate floor today after a Banking Committee markup. 

If there’s bipartisan support for the legislation, it was not apparent during today’s debate. Democrats put forth a number of amendments to the bill, urging lawmakers to adopt further protections against money laundering and consider more strict guidelines for issuers to receive licenses. 

Republicans voted against all of Warren’s proposed amendments, often with little debate. Hagerty and Sen. Cynthia Lummis (the Act’s main champions) argued the current bill includes AML provisions, robust reserve guidelines and a strict registration process for issuers.

Democrat proposals would only increase regulatory oversight without increasing consumer protection, Lummis added.

At one point Sen. Warren criticized her Republican colleagues and accused them of “steamrolling” Democrats to advance the bill. 

In the end, four Democrats (Sens. Warner, Kim, Blunt-Rochester and Gellego) voted to move the bill out of committee and to the floor. 

The GENIUS Act now moves to the full Senate, which will debate the legislation, potentially add amendments and eventually vote. Should it pass, the legislation will move to the House. 

Representatives on the House Financial Services Committee are currently considering a similar bill, the STABLE Act, which they discussed earlier this week in a hearing. The legislation is still in the discussion draft phase and has not formally been introduced.

— Casey Wagner

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As we try to make sense of bitcoin price movements, sometimes there isn’t logic to be found — a tension that gives certain investors pause when mulling exposure. 

That was BlackRock digital assets head Robbie Mitchnick’s take during yesterday’s Blockworks roundtable. 

Bitcoin fundamentally looks like digital gold given its global, scarce properties. 

“But then some days it doesn’t trade like that,” Mitchnick said, adding that some of BlackRock’s institutional clients have a hard time with this.

“It seems like it should be this, but tariffs got announced and it went down like equities and that’s confusing to me because I don’t understand why tariffs impact this,” he noted. “And the answer is they don’t.” 

He went on: “The market has sort of pre-programmed this idea that you should trade bitcoin like a risk-on asset despite the fact that [this] doesn't make any sense based on fundamentals. And so that can become, at least in the short-term, somewhat reflexive and self-fulfilling.”

Bitcoin’s gold-like properties would seem to make it appealing in 2025, Mitchnick said. BlackRock CEO Larry Fink has previously said crypto could play a “flight to quality” role.

But as gold hit a record high Thursday, bitcoin price is roughly 26% off the peak it hit in January. Blockworks’ Byron Gilliam has previously questioned why bitcoin often isn’t viewed as a risk-off asset.

Big fund groups offering crypto ETFs (like BlackRock) do a lot of work educating clients on the investment thesis behind assets like BTC and ETH. 

But beyond being told, investors might just have to experience it for themselves over time.

Aside from bitcoin’s dip alongside equities amid tariff developments, Mitchnick argued there was “no fundamental basis” for bitcoin’s “nosedive” last summer during the Japanese yen carry trade unwind. BTC price would double five or so months later.

“When you see more episodes where short-term it looks a certain way that seems counter-logical, but then medium-term and long-term it behaves more like you’d expect…consistent with its history, then people start to train themselves to ignore that short-term noise,” Mitchnick said. 

That noise, he added, “is more driven by leveraged speculators and hot-money traders and not really thoughtful, long-term buy-and-hold investors.”

— Ben Strack

• The Wall Street Journal reported that President Trump’s family has been in talks to acquire a financial stake in Binance.US. In a post on X, Binance founder and convicted felon Changpeng Zhao denied the allegations. 

• The pressure is on for Congress to pass a spending bill to avoid a government shutdown tomorrow. The House passed a Republican measure that will need some bipartisan support to pass in the Senate, so Democrats must decide whether or not to block the bill. 

• Come meet Casey, Ben and Felix in person at the Blockworks Digital Asset Summit in NYC next week! Sources tell us less than 100 tickets remain.