Uncertainty Fuels Consolidation

Uncertainty Overshadowed Constructive Macro Picture

The week was exceptionally volatile for equity and risk markets. Geopolitical noise and renewed instability in Japanese bond and currency markets overshadowed an otherwise still quite constructive macroeconomic picture.

Behind the scenes, positive data continued to strengthen. U.S. Q3 GDP grew at 4.4% according to updated figures (Q2: 3.8%), driven by exports and investments. While these numbers are inevitably backward-looking, they confirm that the U.S. economy entered 2026 in strong shape.

Meanwhile, the Fed's preferred inflation measure, Core PCE, rose slightly to 2.8%, still clearly above target but without signs of renewed acceleration.

Interestingly, more real-time inflation measures point to even strong disinflationary pressure. Truflation suggests consumer price inflation is currently around 1.2%. The absolute level should be taken with caution, but historically this metric has led official data by about six months. This supports the view that the market's priced-in two rate cuts may be understated.

Greenland Drama and the Familiar TACO Pattern

Early in the week, risk sentiment weakened as talk of tariffs on Europe resurfaced amid rhetoric surrounding the U.S. and Greenland. As before, the so-called TACO trade (Trump Always Chickens Out) proved to be a useful framework.

As the week progressed, the tone softened and eventually a "future cooperation framework" between the U.S. and NATO Secretary General was announced, covering Greenland and the Arctic region more broadly. Tariff talk was walked back, once again following Trump's negotiating style.

Over the weekend, however, uncertainty returned with threats of 100% tariffs on Canada if it enters a trade deal with China. While this too is expected to eventually fade, it adds short-term caution to markets.

Japan Forces Liquidity Expansion

The most significant market move of the week came from Japan. Prime Minister Sanae Takaichi confirmed early parliamentary elections for February 8 and proposed a two-year temporary food consumption tax cut from 8% to zero. Markets quickly focused on the already weak public finance situation.

Japanese government bonds came under heavy selling pressure: the 10-year yield rose to 2.26%, the highest since 1997. Long-term rates moved sharply and the yen weakened, with USDJPY rising toward 160 even as the dollar was broadly weak. This underscores that the move is primarily about debt dynamics, not central bank policy.

As noted before, Japan's situation will likely ultimately lead to increased liquidity. The central bank will need to increase bond purchases to calm markets, and the U.S. will support the yen through currency swaps. On Friday, there were already signs of coordinated action as USDJPY fell rapidly from above 159 to below 156.

Dollar Weakening

This development supports a broader dollar weakening. The dollar has also been under pressure due to the so-called de-dollarization theme, as the U.S. increasingly uses its currency as a geopolitical tool. Gold and silver's strong performance reflects this rotation.

The Dollar Index (DXY) is now at its lowest since early October, which coincided with Bitcoin's all-time highs. Historically, such dollar weaknesses last for several months and serve as fuel for risk assets and global liquidity.

Bitcoin: The Problem Isn't Supply But Demand

Bitcoin has not yet reacted as expected. A failed breakout above $98,000 led to a rapid decline below $90,000. Structurally, the supply side has improved: long-term holder selling pressure has eased. Instead, demand isn't sufficient to absorb short-term investor selling.

Geopolitical uncertainty and Japan-induced volatility have eroded market confidence. ETF flows have turned negative again, indicating reluctance to take on new risk.

Currently, Bitcoin's challenge isn't oversupply, but a lack of marginal buying power in an uncertain macro environment.

New Shutdown Risk in the United States

Additional uncertainty comes from a potential U.S. government shutdown as the current funding arrangement expires on January 30. Prediction markets price over 70% probability of a shutdown. The situation is negative for liquidity, as Treasury cash replenishment drains money from markets.

While the Fed balances the situation with T-bill purchases and balance sheet expansion, the uncertainty itself limits risk appetite.

Summary

The macro picture remains broadly positive: inflation is slowing, economic growth is sustainable, and global liquidity direction is improving. However, political uncertainty, from Japan to Washington, is slowing the transition from better fundamentals to increased risk-taking.

For Bitcoin, this likely means continued consolidation in the short term. The foundation is strengthening, but patience remains key.

Binance Applied for MiCA License

Binance officially applied for an EU MiCA license from Greece, strengthening its European strategy. This is a significant step in the regulatory-friendly development of the world's largest crypto exchange.

Ledger Prepares for IPO

Ledger is preparing a potential U.S. stock market listing at a valuation exceeding $4 billion. The French crypto wallet manufacturer has grown into one of the industry's leading players, and Ledger wallets are the primary choice for many investors seeking secure crypto asset storage.

BitGo IPO Exceeded Expectations

Crypto custody specialist BitGo priced its IPO above expectations and achieved a market cap exceeding $2 billion. Institutional investors favor regulated and infrastructure-focused players, making BitGo an attractive investment target.

PwC: Institutional Adoption Has Reached a Tipping Point

According to PwC, institutional crypto adoption has reached a point of no return: digital assets are increasingly part of payments, treasury management, and settlement.

Thailand Prepares Crypto Regulation

Thailand is preparing regulation for crypto funds and futures trading. This development is part of a broader Southeast Asian trend where countries compete for more crypto-friendly regulatory frameworks.

UBS Opens Crypto Investments to Wealthy Clients

Private banks, such as UBS, are cautiously opening crypto investments to wealthy clients. This is a significant step in the integration of traditional banking and crypto markets.

Ethereum as Tokenization Infrastructure

Ethereum is strengthening its position as the foundation for Wall Street tokenization projects. More and more financial institutions are building their tokenized products on Ethereum, highlighting the network's importance in institutional infrastructure.

SEC Lawsuit Withdrawn

On the regulatory front in the United States, a slight retreat was seen as one significant lawsuit was withdrawn. This suggests that the regulatory climate may be gradually becoming more crypto-friendly.