Trump’s crypto push, AI scepticism and defence stock boom defined year of reversals

Politics gave the trades a push. The laws of speculation pulled them back down. Even with a friend in the White House, these trades couldn’t escape crypto’s core pattern: prices rise, leverage floods in and liquidity dries up. Bitcoin, still the bellwether, is on track for an annual loss after slumping from its October peak. For Trump-linked assets, politics offered momentum, but no protection.

AI trade: The next big short?

The trade was revealed in a routine filing, yet its impact was anything but routine. Scion Asset Management disclosed on November 3 that it held protective put options in Nvidia and Palantir Technologies – stocks at the centre of the artificial intelligence trade that has powered the market’s rally for three years.

While not a whale-sized hedge fund, Scion commands attention due to the person who runs it: Michael Burry, who earned fame as a market prophet in The Big Short book and movie about the mortgage bubble that led to the 2008 crisis.

The strike prices were startling: Nvidia’s was 47 per cent below where the stock had just closed, while Palantir’s was 76 per cent below. But some mystery lingered: Due to limited reporting requirements, it was unclear if the puts – contracts that give an investor the right to sell a stock at a certain price by a certain date – were part of a more complicated trade.

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And the filing offered just a snapshot of Scion’s books, leaving open the possibility that Burry had since trimmed or exited the positions. Yet scepticism about the lofty valuations and massive spending plans of major AI players had been building like a pile of dry kindling. Burry’s disclosure landed like a freshly struck match.

Nvidia, the largest stock in the world, tumbled in reaction, as did Palantir, though they later regained ground. The Nasdaq also dipped.

It’s impossible to know exactly how much Burry made. One breadcrumb he left was a post on X saying he paid $US1.84 for the Palantir puts; those options went on to gain as much as 101 per cent in less than three weeks.

The filing crystallised doubts simmering beneath a market dominated by a narrow group of AI-linked stocks, heavy passive inflows and subdued volatility. Whether the trade proves prescient or premature, it underscored how quickly even the most dominant market narratives can turn once belief begins to crack.

Defence stocks: New world order

A geopolitical shift has led to huge gains in a sector once deemed toxic by asset managers: Defence. Trump’s plans to take a step back from funding Ukraine’s military sent European governments into a spending spree, giving a huge lift to shares of defence firms – from the roughly 150 per cent year-to-date rally in Germany’s Rheinmetall, to Italy’s Leonardo close to 90 per cent ascent during the period.

Money managers who once saw the sector as too controversial to touch amid environmental, social and governance concerns changed their tune and a number of funds even redefined their mandates.

“We had taken defence out of our ESG funds until the beginning of this year,” said Pierre Alexis Dumont, chief investment officer at Sycomore Asset Management. “There was a change of paradigm, and when there is a change of paradigm, one has to be responsible and also defend one’s values. So we’re focusing on defensive weapons.”

From goggle makers to chemicals producers, stocks were snapped up in a mad rush. The boom spilled into credit markets as well, with firms only tangentially linked to defence attracting hordes of prospective lenders. It marked a repricing of defence as a public good rather than a reputational liability – and a reminder that when geopolitics shifts, capital tends to follow faster than ideology.

In Australia, drone detection company DroneShield jumped on the bandwagon, with its stock still up more than 300 per cent this year – even after its top brass cashed in and dumped all their shares in October, sparking an investor stampede that more than halved its share price since then.

Debasement trade: Fact or fiction?

Heavy debt loads in major economies such as the US, France and Japan – and a lack of political appetite to confront them – pushed some investors in 2025 to tout gold and alternative assets like crypto, while cooling enthusiasm for government bonds and the US dollar.

The idea gained traction under a bearish label: the “debasement trade”, a nod to historic episodes when rulers such as Nero diluted the value of money to cope with fiscal strain.

The narrative reached a crescendo in October, when concerns over the US fiscal outlook collided with the longest government shutdown on record. Investors searched for shelter beyond the dollar. That month, gold and Bitcoin both rose to records – a rare moment for assets often cast as rivals.

As a story, debasement offered a clean explanation for a messy macro backdrop. As a trade, it proved more complicated. Bitcoin has since slumped amid a broader retreat in cryptocurrencies.

The US dollar stabilised somewhat. Treasuries, far from collapsing, are on track for their best year since 2020 – a reminder that fears of fiscal erosion can coexist with powerful demand for safe assets, particularly when growth slows and policy rates peak.

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Elsewhere, prices told a different story. Swings in metals from copper to aluminium, and even silver, were driven at least as much by Trump’s tariff policies and macro forces as by concerns about currency debasement, blurring the line between inflation hedging and supply shocks.

Gold, meanwhile, has kept powering ahead, reaching new all-time highs. In that corner of the market, the debasement trade endured as a focused bet on rates, policy and protection.

Debt markets: Cockroach alert

Credit markets in 2025 were unsettled not by a single spectacular collapse, but by a series of smaller ones that exposed uncomfortable habits. Companies once considered routine borrowers ran into trouble, leaving lenders nursing steep losses.

New Fortress Energy’s newly exchanged bonds lost more than half their value in the span of a year. The bankruptcies of Tricolor and then First Brands wiped out billions in debt holdings in a matter of weeks.

In some cases, sophisticated fraud was at the root of the collapse. In others, rosy projections failed to materialise. In every case, investors were left to answer for how they justified taking large credit gambles on companies with little to no proof they’d be able to repay the debt.

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Years of low defaults and loose money eroded standards, from lender protections to basic underwriting. Lenders to both First Brands and Tricolor had failed to discover the borrowers were allegedly double-pledging assets and co-mingling collateral that backed various loans.

Those lenders included JPMorgan, whose chief executive Jamie Dimon put the market on alert in October when he colourfully warned of more trouble to come, saying, “When you see one cockroach, there are probably more.” A theme for 2026.

Bloomberg