High-risk assets such as tech stocks and cryptocurrencies have faced substantial sell-offs over the past month, largely attributed to the escalation of Donald Trump’s trade war. This context raises questions about market strategies and the potential for future economic stability.
Recent reports from the Kobeissi Letter suggest that this decline could be part of a broader strategy aimed at experiencing “short-term pain” to achieve lower inflation and refinance approximately $9 trillion of U.S. debt by allowing market weakness.
“We have seen over $5 trillion erased from U.S. stocks with the goal of lowering rates. Will it work?”
Planned Market Turmoil
The administration appears to be unified in this approach. Commerce Secretary Howard Lutnick emphasized that the stock market should not dictate the administration’s outcomes. Similarly, Treasury Secretary Scott Bessent downplayed concerns regarding market volatility, stating he is “not concerned about a little volatility,” while Trump acknowledged that the country might be entering a “period of transition” that could “take a little time.”
Prominent figures in the business world, including Elon Musk, seem to align with this strategy. Musk recently asserted that Tesla stock “will be fine long-term,” despite notable declines, with TSLA down 40% since the start of the year.
It’s very clear what’s happening:
President Trump now believes “short-term pain” is his ONLY option to lower inflation and refinance $9+ trillion of U.S. debt.
We have seen over -$5 TRILLION erased from U.S. stocks with the goal of LOWERING rates.
Will it work?
(a thread) pic.twitter.com/QlQYU65AZT
— The Kobeissi Letter (@KobeissiLetter) March 13, 2025
This intentional market decline could stem from various factors, including a record government deficit of $1.15 trillion reached in February, efforts to lower oil prices, initiatives to reduce the U.S. trade deficit through tariffs, and plans to cut government jobs that have recently contributed to job growth.
Trump’s strategies are reflective of multiple goals: lowering inflation (currently at 2.8%), controlling oil prices and interest rates, while also reducing deficit spending and improving government efficiency.
Economist Joe Foudy mentioned to Newsweek that this situation presents a “political recognition,” remarking:
“If the stock market responds negatively or if we see weaker economic data, Trump needs to get ahead of the narrative. By framing short-term economic downturns as necessary for long-term gains, he is managing expectations.”
In a typical scenario, the Federal Reserve would lower interest rates to stabilize the economy. However, if tariffs lead to price increases, policymakers may hesitate, fearing that rate cuts could exacerbate inflation, as commented by NYU economics professor Lawrence White.
Trump is clearly telling his plans.
He doesn’t care about the stock market or the crypto market.
All he cares about is that interest rates go down, which will definitely cause some short-term pain.
This reminds me of Q4 2021 when Powell was calling for higher rates and… pic.twitter.com/b6SRvNwRf8
— Cas Abbé (@cas_abbe) March 13, 2025
Impacts on Crypto Markets
This “short-term pain” approach could induce considerable market volatility across all asset classes, including cryptocurrencies. As traditional markets dive, investors might diminish their exposure to high-risk assets like crypto to mitigate losses or revert to cash positions, particularly if interest rates rise again.
Such instability may also lead to liquidity challenges in crypto markets, causing amplified price fluctuations. The crypto market has already seen a downturn of approximately 25% in recent months, resulting in a loss of $1 trillion from the sector.
However, if interest rates are lowered in the long term, cryptocurrencies may emerge as viable alternative investments when capital seeks higher yields.
Additionally, economic turbulence might expedite regulatory efforts in the crypto space, potentially clarifying the landscape and fostering greater institutional adoption.
Should this strategy influence dollar strength, which has faced recent declines, cryptocurrencies could gain favor as alternatives to fiat currencies.
Over time, as the crypto sector matures, markets might gradually diverge from traditional financial markets, establishing their own economic cycles, although more challenges are expected before any substantial recovery can occur.
This post originally appeared on CryptoPotato.
