Risk Management 101: How to Protect Your Capital in Volatile Markets

Bitcoin hit flash volatility on Jan. 10 at the start of the European trading session to hit an all-time high of $109,356 on Bitstamp.

BTC price has climbed from its lows below $100,000 on Jan. 19, rising as much as 9.6% to trade above $109,000 for the first time ever.

Data from Cointelegraph Markets Pro and TradingView shows BTC trading at around $108,000, up 3.3% over 24 hours.

Data from Cointelegraph Markets Pro and TradingView confirmed BTC/USD reached its highest-ever levels after “teleporting” over $7,200 in 60 minutes.

This comes just hours before US President-elect Donald Trump is inaugurated and returns to office for his second term.

Over the weekend, this led to a wild ride in the crypto industry when Donald Trump launched his own memecoin Official TRUMP ($TRUMP), achieving a market cap of as high as $20 billion in only two days to rank among the top 15 on Jan. 19.

This sent shockwaves across the crypto market, which continued when his wife, Melania Trump, launched her own memecoin, causing TRUMP and other cryptocurrencies to drop.

BTC has, however, made an “impressive comeback” and is “once again flirting with all-time highs after a rollercoaster of a week that showcased the cryptocurrency’s trademark volatility,” said pseudonymous analyst Ferozwala.

The rally reversed what had previously been a drop of over $3 billion on open interest. Data from monitoring resource CoinGlass showed an increase of around $4.74 billion as BTC price rebounded.

The turn-around in BTC’s price action has also sparked massive liquidations across the crypto market, with more than $52 million short BTC positions being liquidated in less than one hour.

While many expected Trump’s inauguration to take Bitcoin to new all-time highs, trader and analyst Jelle is optimistic that the time may have come for a run-up to “mid $130Ks.”

“​​Bitcoin broke out from the descending triangle, retested it — and bounced straight to new all-time highs,” the analyst said in a Jan. 20 post on X.

Jelle was referring to a triangle that has been in formation since mid-November. The price broke above the triangle’s resistance line on Jan. 17, signaling the start of a bullish move upward.

“Target of this move is somewhere in the mid $ 130k.”

For fellow analyst Daan Crypto Trades, Bitcoin’s rise to new record highs after swiftly closing a “small CME gap” it had earlier opened marks a “good start” to an interesting week.

Trump, speaking at a rally on the eve of his inauguration, said that he would sign a flurry of measures, including repealing President Joe Biden's executive orders "within hours," beginning a long-promised mass deportation effort, banning transgender athletes from competing in male sports, bolstering investment in military spending and touring the areas devastated by wildfires in California, all within his first week in office.

During a wide-ranging and often acerbic address at the Capital One Arena, Trump said he will end Diversity, Equity and Inclusion programs "all across the government" and said the country will return to "the merit system."

He said he will launch a "mass deportation" effort that was a centerpiece of his campaign. It seeks to expel what Trump has repeatedly called "dangerous criminals."

"We will not be invaded. We will not be occupied, we will not be overrun," Trump said of his plans for the deportation plan, which he said will begin Monday "at noon."

The incoming president claimed that more than half of the people who have crossed the U.S. border illegally have killed at least one person, but offered no proof to back up that statement. He instead rode a wave of enthusiasm from the cheering crowd assembled at the rally, many wearing "Make America Great Again" hats and holding red and white signs emblazoned with "47."

U.S. Homeland Security officials have said most migrants crossing the border are families trying to escape poverty, and illegal crossings have dropped to the lowest level in years, a non-partisan analysis of federal data shows.

Trump also promised to make public documents associated with the assassinations of John F. Kennedy, Robert F. Kennedy and Dr. Martin Luther King Jr., reversing what he called the over-classification of government documents

"It's all going to be released," Trump declared.

He also said he will direct the U.S. military to continue work on an iron dome missile defense system, and change the philosophy of the personnel admitted into the U.S. armed forces.

"We will get wokeness the hell out of our military effective immediately and make it like it used to be," Trump told the crowd.

The incoming president also called onto the stage SpaceX and Tesla CEO Elon Musk, who was accompanied by his son. Musk jumped and waved his arms as he had done at a previous rally and his son waved to the crowd.

"Looking forward to making a lot of changes," Musk said. "This victory is the start, really."

Musk and former GOP presidential hopeful Vivek Ramaswamy have been appointed by Trump to lead the new Department of Government Efficiency.

They have said they will cut $2 trillion from the U.S. budget in the first year of the Trump administration, a figure economists have said is next to impossible without cutting deeply into essential government services.

"We have to be protective of our geniuses," Trump said of Musk as the tech executive walked off the stage with his son trailing behind him.

The incoming president also said he will move to implement a 90-day reprieve on a ban on the popular social media app TikTok. Citing security concerns over the app's ownership by the Chinese company ByteDance, Trump was critical of the platform during his first presidency and called it dangerous and threatening, but became more supportive of the app during his campaign for the White House this time around, crediting it with helping him with winning the 2024.

The company, whose app went dark late Saturday night, posted a poignant message on its homepage suggesting that "President Trump" would restore it once he took office.

The app, with more than 170 million users in the United States, crackled back to life Sunday morning after Trump said people deserve to see the inauguration.

During the Sunday rally speech, Trump also took credit for the cease-fire between Israel and Hamas, a deal for which Israeli Prime Minister Benjamin Netanyahu said Trump's transition team and the Biden administration team deserve equal credit. Trump added that if he had been president, the latest skirmish in the centuries-long battle between Israel and Hamas would have "never happened."

Dangerously cold winter weather has forced officials to move Monday's inauguration event indoors. The swearing-in will be in the Capitol Rotunda with only about 600 people.

"We will open Capital One Arena on Monday for LIVE viewing of this Historic event, and to host the Presidential Parade," Trump said. "I will join the crowd at Capital One, after my Swearing In."

Organizers said 200,000 people have tickets, but only 20,000 will fit in the arena. They have said people will be able to catch a glimpse of Trump's motorcade as it travels along Pennsylvania Ave. en route to the event, but as of Sunday night additional plans for the event remained in flux.

The Pound to Euro exchange rate (GBPEUR) is at 1.1850 after falling for three weeks in succession, and there is little in the technical charts or fundamental setup to advocate for a major recovery.

Weakness culminated in a break below the 200-day exponential moving average (EMA) last Tuesday (1.1890), and the exchange rate has so far failed to reclaim this technical level. A rule of Pound Sterling Live's Week Ahead model is that a break below the 200 EMA signals an exchange rate has entered a multi-week downtrend.

In fact, it looks as though the 200 EMA will now act as a resistance level that will block any recovery attempts, suggesting any GBP/EUR strength in the coming days will be shallow.

The selloff has, nevertheless, slowed. The Relative Strength Index (RSI) reached oversold conditions last week (after hitting 30), which meant a period of recovery or consolidation was needed. It appears that consolidation has played out, allowing the RSI to unwind from oversold.

There also appears to be some graphical support forming at approximately 1.18450-1.1900, which goes back to periods of weakness in September and October of last year (see the turquoise line on the chart). This could offer some support in the run-up to Tuesday's UK labour market report before ultimately giving way to a fresh leg lower.

Pound Sterling has been hit by a run of poor data over recent weeks that speaks of an economy that has run out of momentum owing to the significant taxes placed on businesses by the government. In addition, an inflation-busting increase to the minimum wage is due to come into effect, as is further red tape on employing people.

All this points to the labour market as a key cost driver and headwind for businesses operating in the UK, and this is why this week's labour market report will be of particular interest. The outcome is likely to influence expectations for the amount of interest rate cuts the Bank of England will likely make this year.

The consensus looks for the unemployment rate to edge up to 4.4% from 4.3% in light of survey evidence of growing job losses and a slowdown in hiring intentions. In particular, the PMI surveys have been warning of a deterioration in the labour market for a couple of months now.

"Employment indicators are pointing firmly to a decline in payrolled employment in the coming months," says Sam Hill, Head of Market Insights at Lloyds Bank.

The Pound is likely to fall should unemployment rise faster than was expected and the opposite reaction is likely if the data proves stronger than expected.

"A payrolls rise would be a big surprise, suggesting business sentiment is overegging the jobs slowdown and likely pushing the market back to pricing fewer than two cuts," says Robert Wood, an economist at Pantheon Macroeconomics.

Of importance to traders will be the wage data that is released alongside the job figures. Here, The consensus expects wages to rise 5.5% in November, up from 5.2% in October. In isolation, the rule is that the pound will fall if wages undershoot expectations, but it will rise if the data beats.

The Bank of England is watching employment and wage dynamics, judging that high wages are inflationary and must be met with higher-for-longer interest rates.

However, rising unemployment will suggest to the Bank that wage pressures will fall notably in the coming months, which will allow them to cut interest rates further.

For the Pound, rising expectations for rate cuts will result in weakness, and is why we forecast further weakness in the coming days, judging that the process has further to run.

Money market pricing shows investors have raised bets for more rate cuts from the Bank of England this year, which has contributed to the weaker Pound. However, the market is still only expecting two rate cuts, with a third being a possibility.

Most economists we follow suggest four cuts is the most likely outcome. This means the market can continue to 'price in' rate cuts from here, resulting in further weakness in Pound Sterling.

Keep an eye on Friday's release of PMI survey data for January as this will be the first major snapshot of how the UK and Eurozone economies performed in January.

The consensus looks for Eurozone output to have improved, driven by a recovery in Germany. This can bolster the Euro relative to the Pound.

The UK is meanwhile expected to show a slowdown in activity:

"Flash PMIs on Friday will likely show continued weak momentum; we expect the services PMI to drop to 50.5. But the details are as important as the headline now. The crucial question for the economic outlook and the MPC’s decisions is how much tax hikes are cutting employment or raising prices," says Wood.

Our setup for the Pound-Euro is bearish owing to the event risks associated with the labour market data and the downbeat technical setup. However, we do note that some investment bank technical strategists now think weakness has gone too far and are looking to buy the pound against the euro at these levels.

"We go short EURGBP," says a strategy note from Citi, citing expectations for a reversal in negative sentiment towards the UK.

However, we think this week will be too soon for sentiment to improve, given expectations for a poor labour market report.

For decades, German politics and elections epitomised stability, often described as boring. Few parties in parliament, clear majorities, and two-party coalitions provided political and economic stability, making Germany a crucial anchor for Europe. While many European countries experienced political fragmentation, Germany followed suit only hesitantly and gradually. However, with the end of the Merkel era, Germany lost this unique selling point of political stability. The first three-party government coalition ever collapsed after three years, and on 23 February, the country is heading to the ballot for snap elections.

A crucial topic in the election campaign is the dire state of the German economy. Just last week, news broke that the German economy contracted in 2024 for the second year in a row. However, economic problems have been around for longer. In fact, the economy is currently the same size as it was in early 2020, marking five years of de facto stagnation. The reasons for this stagnation have been discussed endlessly here on Think. In short, a combination of cyclical and structural headwinds has paralysed the economy. While cyclical headwinds like high inflation, high interest rates, high inventory levels, or even high policy uncertainty can fade away rather quickly, the structural headwinds remain. Germany has started to realise that the old macro business model of cheap energy and easily accessible large export markets is no longer working. Ten years of underinvestment, deteriorating competitiveness, and China’s shift from export destination to fierce industrial competitor have taken – and will continue to take – their toll on the German economy.

With roughly one more month to go before the elections, let’s take a closer look at Germany’s structural problems. The list is long, but to keep it simple, we will focus on the basics of the German macro-economic business model: energy, China, and competitiveness.

Prior to the Russian invasion of Ukraine, energy prices and supply had never been a concern for German industry. Cheap energy was a given. In a country that doesn’t have commodities, except for coal, energy imports can become crucial, particularly as part of the green transition.

Contrary to common belief, Germany decided in 2002 to phase out nuclear energy over a period of some 30 years. The first nuclear power plants were closed in 2003 and 2005. In 2010, this transition period was extended, but with the Fukushima catastrophe, the German government expedited the decision to phase out nuclear energy, closing many power plants almost immediately, with the rest phased out by 2023. As a result, the share of nuclear power in Germany’s energy mix declined rapidly, from around 20% to zero, while the share of renewables increased from 20% to more than 60%. At the same time, however, gas imports from Russia remained an important source to smooth the transition.

Until the Russian invasion of Ukraine, energy prices and supply hadn’t been an issue for industry at all. Low prices and stable supply were simply a given. In 2019, Germany still had one of the lowest electricity prices in the EU, much lower than, for example, in France, and at similar levels as in the US. In 2023, electricity prices in Germany were three times as high as in 2019, twice as high as in France and China, and three times as high as in the US.

On a more positive note, Germany has front-loaded the green transition and is ahead of many other industrial countries. On a more negative note, however, the high costs, the still unstable flow of renewable energy, and the high costs of importing gas to bridge any disruption in renewable energy supply have significantly undermined Germany’s industrial foundation. This problem is likely to be aggravated by surging energy demand due to the use and application of AI and other web services.

In the early 2000s, China was the saviour of the German economy; now it’s the worst threat. China’s fast growth, accelerated by joining the World Trade Organization, brought huge appetite for industrial goods ‘Made in Germany’. While many Germans still thank former Chancellor Gerhard Schröder for his structural reforms in the early 2000s, the role of China was at least as important, if not more so, for Germany’s return as an economic powerhouse. While German exports to the rest of the world doubled over the last twenty years, exports to China increased eight-fold.

However, with the start of the pandemic, China’s role as an important growth driver for Germany has changed. First, Chinese demand dropped due to weak domestic demand, then it dropped as China increasingly became able to produce goods it normally imported from Germany, particularly cars. In fact, in 2018, China announced its 2025 strategy ‘Made in China’, which aimed to secure China's position as a global powerhouse in high-tech industries – a better Germany. The strategy was almost a copy of what Germany knew as its own ‘Industry 4.0’ strategy. The biggest difference is that China put its money where its mouth was; Germany didn’t. China has become a competitor for many German industries.

The ‘China factor’ has highlighted a more general problem of the German economy: the gradual loss of international competitiveness. In the most prominent international competitiveness rankings, Germany was in the Top 5 in the early 2010s. Currently, it ranks between 20 and 25. The reasons for this loss in competitiveness include a rapid decline in infrastructure, education, and digital infrastructure. Regarding infrastructure and education, Germany has been too complacent and simply forgot (or didn’t deem it necessary) to reinvigorate itself, while regarding digital infrastructure, the country collectively forgot to invest and innovate. Somehow, former Chancellor Angela Merkel’s words from 2013 that the internet was a complete novelty labeled an entire nation’s failure to embrace digitalisation.

But it’s not only the conventional and digital infrastructure that is weighing on Germany’s growth performance. For a country that used to be famous for its skilled employees, the poor performances in the OECD’s PISA tests are equally worrisome.

The drop in international competitiveness is closely linked to chronic underinvestment. Over the last twenty years, German public investment as a percent of GDP has been significantly below the EU average, and private sector investment has also been lower than in many other countries. While the holding back of public investment can be explained by increased public consumption and the constitutional debt brake, private investment has been held back by higher taxes, regulation, and outsourcing, but also generational changes. Particularly in the famous German Mittelstand, investments were held back as business owners couldn’t find adequate succession planning. Several studies have tried to estimate the current investment gap in Germany, with results ranging between 400 billion and 600 billion euros (10% to 15% of GDP).

After five years of de facto stagnation, last year finally brought broad awareness in German politics and society that the economic problems are not just cyclical. The country is still one of the richest economies in the world, but it needs an overhaul to stop the gradual deterioration. Just addressing main issues energy, China and competitiveness will be a challenge. Add to this unfavourable demographics and the impact on healthcare and pension systems and it’s clear that there is no easy way out of the current situation.

Looking at the economic ideas of the political parties, it is becoming increasingly clear that even in a best-case scenario with reforms and investments, any new government will not try to overhaul the old economic business model, but rather try to rejuvenate the old one. Less red tape, some tax cuts to stimulate spending and investments, possibly attempts to lower energy costs and infrastructure investment – all of which feature in any European economist’s wish list, and a growth booster for the economy; at least temporarily.

Whether these measures will really be sufficient in competing against China and the US is a completely different question. What Germany would get after the elections is a refurbished model of its economy – clearly better than the old one with cracks, battery failures and very few gadgets, but also not a shiny, sprinkling new model that makes the competition speechless. But we will have a closer look at the different proposals in the second part of our German election coverage.

Global markets ended last week with a risk-on sentiment, buoyed by cooling inflation and positive economic data from China. This week, attention shifts to Trump’s inauguration and the market’s response.

Investors will closely watch his initial policy actions on tax cuts, tariffs, and other measures. Any concrete steps could prolong the so-called "Trump trades" – characterised by a strong US dollar, rising government bond yields, and bullish equity markets.

Conversely, a lack of clarity may result in subdued or sideways movement in these asset classes.

Key economic data will focus on business activity in the manufacturing and services sectors across major economies, while the earnings season will continue to shape market sentiment.

In Asia, the Bank of Japan (BOJ)’s interest rate decision will be a highlight.

Flash Purchasing Managers’ Index (PMI) data for manufacturing and services sectors in Germany and France will take centre stage.

Manufacturing activity in both countries remained in contraction last month, reflecting political uncertainties and economic challenges.

In France, the manufacturing PMI dropped to 41.9, the steepest decline since May 2020. Germany’s figure came in at 42.5, marking a three-month low.

Forecasts suggest a slight improvement, with PMIs expected at 42.4 for France and 42.9 for Germany, though both remain in contraction territory.

In the services sector, France’s PMI recorded a fourth consecutive month of contraction in December, rising to 49.3 from 46.9 in November.

Germany’s services PMI returned to growth at 51.2 after a brief contraction, indicating a fragile recovery. Projections point to similar trends, with France’s services PMI forecast at 49.5 and Germany’s at 51.1.

Germany will also release the ZEW Economic Sentiment Index, a critical measure of economic outlook. December’s index saw the highest jump in four months, fuelled by expectations of policy shifts amid snap elections and potential rate cuts.

January’s reading is anticipated to slip slightly to 15.2, down from 15.7.

In the UK, manufacturing PMI declined for the third consecutive month to 47 in December, with January’s forecast at 46.9, indicating continued contraction.

Meanwhile, services PMI is expected to edge down to 51.4 from 51.6, marking the 14th consecutive month of expansion.

While these data points are unlikely to drive significant market movements, the ongoing weakness in business activity may reinforce the European Central Bank (ECB) and Bank of England (BOE) rate-cut trajectories through 2025.

The US earnings season will remain a key driver of market sentiment, with Netflix being the first major tech company to report quarterly results this week.

The video streaming giant saw its share price surge 90% in 2024, driven by strong earnings and growth in its ad-supported tier.

Analysts expect earnings per share (EPS) to double year-on-year to $4.23, with revenue forecasted at $10.1 billion, a 15% annual increase.

However, substantial investments in live sports may have pressured profit margins. Netflix shares have pulled back slightly in 2025, closing at $858 last Friday.

The S&P Global flash manufacturing and services PMIs will also be crucial indicators of US economic activity.

Manufacturing PMI contracted for the sixth consecutive month in December, reflecting post-election uncertainties.

In contrast, services PMI showed eight consecutive months of expansion, with December marking the strongest growth.

The Bank of Japan (BOJ) is expected to raise its interest rate by 25 basis points to 0.5%, potentially bolstering the Japanese yen.

Last week, BOJ Governor Kazuo Ueda hinted at the possibility of a rate hike, citing an anticipated inflation uptick in December following the end of energy subsidies.

However, Trump’s inauguration may overshadow the BOJ’s decision in shaping market trends.

The People’s Bank of China (PBOC) will decide on its one-year and five-year loan prime rates (LPR) this week.

Markets widely anticipate that both key rates will remain unchanged for the third consecutive month.

China’s economy grew by 5% in 2024, meeting government targets. Fourth-quarter growth of 5.4% highlighted the effectiveness of stimulus measures in supporting recovery.

Analysts predict further accommodative monetary and fiscal policies in 2025, likely boosting Chinese stock markets and benefiting European consumer stocks.